US Dollar (USD) to Pound Sterling (GBP) Exchange Rate Down on Fed Rate Bets

Published: Thursday, 8 September 2016 11:00 BST - Written by Minesh Chaudhari

STORY LINK US Dollar (USD) to Pound Sterling (GBP) Exchange Rate Down on Fed Rate Bets

The US Dollar to Pound exchange rate recovered from its worst weekly levels on Wednesday as investors sold off the Pound following overvalued rallies into the currency. However, as US data consistently disappoints, the US Dollar remains in a worse position.

USD/GBP continued to trend below the week’s opening levels of 0.7522. While the pair plummeted to a post-Brexit vote low of 0.7438 on Tuesday, it was able to recover most of these losses on Thursday and by Friday was trending above 0.7480 again.

US Dollar (USD) Exchange Rates Fail to Hold Ground after Poor Data

The US Dollar has underperformed considerably this week. Despite hopes as early as last week that the ‘Greenback’ would begin a more solid recovery on optimistic data, all the data ended up coming in well below expectations.

Beginning with an unexpected contraction in ISM’s Manufacturing print for August, Friday’s Non-Farm Payroll report came in below expectations and Tuesday’s Non-Manufacturing report from ISM also disappointed.

The Non-Manufacturing Composite report from ISM was expected to slow slightly from 55.5 to 55 in August, but instead plunged to 51.4 – the print’s slowest rate in six years.

These figures collectively undermined market hopes for a Federal Reserve rate hike in September, and as a result the US Dollar has weakened across the board.

Hawkish comments made by Fed policymakers on Wednesday were unable to give the ‘Greenback’ a considerable boost, as the currency continued to slip on Thursday.

Pound (GBP) Exchange Rate Falls from Best Levels as Economic Optimism Wanes

Britain’s August economic figures had previously given Sterling investors what was perceived to be a lot to cheer about, as figures beat expectations across the board, seemingly indicating a rebound from July’s Brexit-vote shock.
However, while August data continues to beat expectations, investors began to view the Pound’s recovery rally as overvalued on Wednesday due to yet direr July figures as well as comments from the Bank of England (BoE).

Wednesday’s datasets included industrial and manufacturing production figures from July, which both had bearish forecasts in fitting with July’s gloomy economic activity.

However, while industrial production came in above expectations, manufacturing fared far worse contracting at -0.9% month-on-month and coming in at a low 0.8% year-on-year.

The BoE made a series of comments on Wednesday, including more clarity from BoE Governor Mark Carney on the bank’s August policy decisions.

Among his comments were affirmations that he believed the easing measures were still necessary despite August’s activity rebound – which he reminded markets that the BoE had forecast would happen. As a result, economic concerns were brought back to the forefront and Sterling weakened.

USD/GBP Currency Forecast: UK Trade Deficit Updates on Friday

The US Dollar to Pound exchange rate could continue to fluctuate along its current trajectory until Friday unless the Euro’s ECB-influenced movement is enough to cause currency cross-flows.

If the Euro experiences a bigger-than-expected selloff in response to the ECB’s September policy meeting, the US Dollar could strengthen due to being the Euro’s premiere rival.

Failing that, USD/GBP will likely not see any considerable shifts in movement unless Thursday’s US jobless claims comes in well above or below expectations and influences USD movement.

USD/GBP could also move in response to Friday’s publication of July UK trade deficit figures. As July hit the UK economy harder than expected, these figures may disappoint.

However, the weakness of the Pound could cause the deficit to be lightened quicker-than-expected due to large shifts in import and export prices.

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