GBP to USD Exchange Rate Slips as ?Greenback? Recovers

July 31, 2017 - Written by John Cameron

STORY LINK GBP to USD Exchange Rate Slips as ?Greenback? Recovers

While bets that the Federal Reserve will hike US interest rates again before the end of 2017 have fallen, the British Pound to US Dollar exchange rate slipped on Monday as investors bought the US Dollar after poor performance last week.

Due largely to US Dollar weakness, GBP/USD advanced from 1.2994 to 1.3132 during last week’s trade. The pair briefly hit a 2017 high of 1.3153 and remains above the level of 1.31.

GBP Limp on Monday Amid Mixed Domestic Data

The Pound slipped against the US Dollar on Monday as investors once again lacked a reason to buy the British currency.

Monday saw the publication of Britain’s June mortgage approvals results, which fell short of 65k expectations and came in at just 64.68k. Mortgage lending improved slightly, from £3.9b to £4.1b.

The Bank of England consumer credit print dropped in June, from £1769m to £1458m. Following the report, ratings agency Moody’s issued a new report with warnings about Britain’s consumer credit situation. According to the report from Moody’s Greg Davies;

‘Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed.

An additional challenge is that households’ capacity to draw on savings to maintain consumption and/or service their consumer debts has significantly diminished.’

Last week’s UK data included UK Gross Domestic Product (GDP) projections from Q2 2017, which met expectations, and a solid July distributive trades report from the CBI.

This helped Sterling advance last week, but as the US Dollar strengthened this week the Pound’s gains have stopped.

USD Demand Improves Following Poor Performance

Political concerns and lower Federal Reserve interest rate hike bets weighed heavily on the US Dollar last week, preventing the ‘Greenback’ from even benefitting from impressive durable goods orders results.

Bets that the Federal Reserve will leave US interest rates frozen until 2018 have been over 54% since the beginning of the week.

On top of this, markets have lost confidence in the US Trump Presidency due to a lack of key legislative victories in Congress for Trump’s agenda so far.

Still, the US Dollar benefitted slightly today from June’s pending home sales report and the Dallas Fed manufacturing index for July, which unexpectedly improved from 15 to 16.8.

Pending home sales improved to 1.5% month-on-month, beating 0.7% forecasts. The previous figure was revised higher from -0.8% to -0.7%. Yearly pending home sales improved from -1.6% to 0.5%.

Lawrence Yun, chief economist from The National Association of Realtors, commented in the report;

‘The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs.

Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria.’

GBP/USD Forecast: Bank of England (BoE) Meeting in Focus

The Bank of England (BoE) will hold its August monetary policy decision on Thursday, which is likely to be a major influence on the Pound to US Dollar exchange rate later in the week.

If the BoE takes a more cautious tone and backs away from any recent hints of hawkishness due to Britain’s recent drop in inflation, the Pound is likely to continue seeing weak trade. However, if more BoE officials happen to take hawkish tones, Sterling will soar.

Until then, there’s plenty of notable data for Pound and US Dollar traders to react to as well.

Markit’s July PMIs for Britain will be published, with the key services print coming in on Thursday before the BoE meeting.

US PMIs for July will also be published, with ISM’s manufacturing report due Tuesday and the non-manufacturing print coming later in the week.

For USD traders though, this week’s biggest event will be Friday’s US Non-Farm Payroll report from July.

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TAGS: Pound Dollar Forecasts