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GBP to USD Exchange Rate Sheds Week?s Gains Ahead of US NFP Report

August 4, 2017 - Written by Minesh Chaudhari

Despite broad US Dollar weakness lately, the British Pound to US Dollar exchange rate shed its weekly gains on Thursday as investors reacted to the latest Bank of England (BoE) news and awaited Friday’s key US data.

The pair currently trends near the week’s opening levels of 1.3132, but as recently as yesterday GBP/USD hit a fresh 2017 high of 1.3256. This was also the pair’s best level since September 2016.

GBP Undermined as Bank of England (BoE) Takes Dovish Tone


Sterling’s advances over the past week were cut short when the Bank of England (BoE) held its August policy decision, as the bank took a more dovish tone than hawkish investors had hoped.

Analysts predicted that the bank would leave policy frozen and that only two hawkish BoE policymakers would vote to hike rates. This turned out to be accurate, though some Pound traders were seemingly hoping for a surprise rate hike.

Sterling’s main selloff was the result of the bank downgrading its UK growth and wage growth forecasts however. The BoE now expects 1.7% growth in 2017, down from 1.9%, and 1.6% growth in 2018.

Wage growth is now forecast to only hit 3% in 2018, down from the previous estimate of 3.5%.

On top of that, BoE Governor Mark Carney took a dovish tone in the day’s press conference, weighing further on any hopes of the bank becoming hawkish in the foreseeable future.

Carney warned on the damage the Brexit process could cause for Britain’s economy and reminded markets that the bank would not be able to stop all potential damage.
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He also stated that it has become more evident that uncertainty over the Brexit process is putting off businesses from making new investments or giving pay rises.

With no key UK data due until next week, Sterling trended limply during Friday’s session.

USD Limp on Fresh Political Uncertainties


While GBP/USD trended near the week’s opening levels at the end of the week, this was more to do with Pound weakness as the US Dollar has also performed poorly throughout the week.

The primary concern of USD traders lately has been persistent political concerns, as US President Donald Trump has thus far failed to pass major legislation through Congress.

This has worsened market confidence in the President and many investors are no longer hopeful that Trump will succeed in pushing his ambitious tax and infrastructure plans into law.

Fresh uncertainty rose at the end of the week too, as Thursday night saw a grand jury assigned to the ongoing investigation on whether or not the 2016 Trump campaign collaborated with Russia.

According to strategists from Commerzbank;

‘It is becoming increasingly clear that the Greenback is ...suffering as a result of President Trump’s weak government --the situation in the White House is simply too chaotic.

That means any hopes that arose after the elections and resulted in a sharp rise in inflation expectations have since been dashed.’


GBP/USD Forecast: Fed Rate Hike Bets in Focus over the next Week


Both the Pound and US Dollar have experienced broad weakness in recent weeks, but the US Dollar is more likely to drive GBP/USD movement over the coming week as key US data could influence shifts in Federal Reserve interest rate hike bets.

Due to poor US data, markets are currently betting that the Fed will leave US interest rates frozen until 2018.

As a result, today’s US Non-Farm Payroll report and next week’s US inflation stats could have a notable impact on both Fed bets and the ‘Greenback’ Dollar.

If the US NFP report from July impresses, it will indicate the US economy remains strong despite recent uncertainties, which could bolster the chances of the Fed maintaining its hawkish outlook.

Sterling is unlikely to see much shift in movement for most of next week, until UK trade and production data from June is published next Thursday.

Political news could also inspire GBP/USD movement. Any developments on Brexit negotiations or Trump controversies could cause market volatility.
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