GBP to USD Exchange Rate Continues its Climb as UK Manufacturing Impresses

September 8, 2017 - Written by Minesh Chaudhari

STORY LINK GBP to USD Exchange Rate Continues its Climb as UK Manufacturing Impresses

Despite mixed UK data over the past week, investors have been buying the undervalued Pound from its lows, helping the British Pound to US Dollar to advance. The ‘Greenback’ has been held back by underwhelming US data and low Fed rate hike bets.

After a modest gain last week, the GBP/USD exchange rate has seen a much stronger climb in recent sessions. As of the time of writing, the pair has advanced from Monday’s opening level of 1.2951 and now trends near a monthly high of 1.3187.

GBP Supported by Friday’s UK Ecostats

Investors have been slowly buying the highly undervalued Pound back up from its lows in recent sessions, and Friday’s UK ecostats helped by making the British currency a little more appealing.

While the outlook for Britain’s economy is still murky and full of uncertainties, investors have been slightly encouraged by July’s better-than-expected manufacturing production results from the Office for National Statistics (ONS).

According to the ONS report, yearly production beat 1.7% forecasts and jumped from 0.6% to 1.9%. The month-on-month manufacturing print was forecast to come in at 0.3%, but improved from 0% to 0.5%.

Kate Davies, senior statistician from the ONS, said the better-than-expected manufacturing data was due to strong performance from car manufacturers;

‘Manufacturing remains relatively subdued since the start of the year, though July showed the first significant monthly growth of 2017, with car production increasing partly thanks to new models rolling off the production lines.

The usual period of summer maintenance of North Sea oil platforms also failed to materialise for a second month running.’

Sterling was supported further by July’s trade deficit update. July’s trade balance came in at £-2.87b, while the previous figure was revised up from £-4.56b to £-2.91b.

However, the day’s other UK data was mixed. Industrial production met expectations in July at 0.4% year-on-year and 0.2% month-on-month.

Meanwhile the latest construction datasets were highly disappointing. Construction output contracted at -0.4% in July, while the Q2 construction orders result came in at -12.6%. These weighed on Sterling and prevented it from advancing even higher.

USD Unappealing as Fed Uncertainties Persist

The US Dollar weak-streak has continued in recent sessions, and Federal Reserve interest rate hike bets have remained low.

Overall, there has simply been little reason for investors to buy the ‘Greenback’ as the US economic and political outlooks become cloudier.

Market bets that the Fed will leave monetary policy frozen until 2018 are currently at around 67%. Only around 31% bet the Fed will hike rates again this year.


This was largely unaltered despite a relatively hawkish statement from New York Fed President William Dudley on Friday morning. Dudley still believes US inflation will rebound and that the US economy would be able to support a third rate hike in 2017.

Among the reasons for persistently low Fed bets and US Dollar weakness was the surprise news that Fed Vice Chairman Stanley Fischer had announced his resignation earlier in the week.

His sudden announcement simply left the Fed with too much uncertainty, as at least four positions on the bank must now be filled by US President Donald Trump.

On top of Fed concerns, the latest US jobless claims data disappointed traders as 298k new jobless claims were filed.

GBP/USD Forecast: Inflation Reports in Focus

Next week will be a vital one for the Pound and US Dollar outlooks, as August inflation data from both Britain and the US will be published.

Tuesday will see the publication of Britain’s August Consumer Price Index (CPI) report, followed by US inflation on Thursday.

If UK inflation beats expectations, it would indicate that inflation is persistently strong which could put pressure on the Bank of England (BoE) to tighten UK monetary policy.

The BoE will be holding its September policy decision on Thursday, so strong UK inflation could cause Sterling to surge.

However, the US inflation report could prove even more influential. Hawkish USD investors are eagerly awaiting an improvement in US inflation so 2017 Fed rate hike bets can rise again.

If US inflation impresses, the US Dollar is likely to see a surge in demand next week. The ‘Greenback’ would become even stronger if US retail sales results beat expectations too.

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TAGS: Pound Dollar Forecasts