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GBP to USD Exchange Rate Slips from Highs despite Firming Bank of England (BoE) Bets

March 22, 2018 - Written by Frank Davies

Despite strong UK data and a hawkish tone from the Bank of England (BoE) during its policy decision on Thursday, the British Pound to US Dollar (GBP/USD) exchange rate fell back from its best levels towards the end of the day as the US Dollar strengthened.

The pair has still seen strong gains throughout the week so far despite the Thursday dip and is still on track to see bigger gains than last week. GBP/USD opened this week at the level of 1.3946 and has advanced for most of the week. The pair hit a monthly high of 1.4173 on Thursday before slipping back below 1.41.

GBP Unable to Sustain Gains as May BoE Rate Hike Largely Priced In


While the Bank of England (BoE) took a hawkish tone towards monetary policy during its March policy decision, the news only gave Sterling exchange rates a brief boost.

Strong UK data and news that a post-Brexit transition period had been largely agreed by UK and EU negotiators bolstered market bets that the Bank of England would be pressured into tightening UK monetary policy as soon as May.

As a result, the bank’s own heavy indications that it would likely hike UK interest rates in May had little effect on Sterling. In fact, investors opted to sell the Pound from its monthly highs against currencies like the US Dollar.

According to Ken Odeluga, analyst from City Index;

‘Sterling traded against the Dollar was able to spike to a fresh seven-week high though it soon settled around 100 pips lower. It remained elevated relative to earlier in the month. …

… In short, a May rate rise remains all but certain, but the market had largely priced it before Thursday.’

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Market confidence in the chances of a May interest rate hike from the bank was supported by this week’s UK data, which has largely beaten market expectations.

Thursday saw the publication of Britain’s February retail sales results, which impressed in most major prints. The month-on-month figure jumped to 0.8%, double the expected 0.4%. However, the previous figure was revised lower from 0.1% to -0.2%.

Yearly retail sales were similar. While the print came in at a better than expected 1.5%, the previous figure was revised lower from 1.6% to 1.5%.

Britain’s UK job market results from January were more impressive. Investors were particularly impressed with news that Britain’s wages including bonuses had risen to a better than expected 2.8%, beating the forecast 2.6%.

USD Advances Versus Sterling Despite ‘Trade War’ Concerns


Markets have found the US Dollar more appealing this week, but it has been unable to see particularly strong demand as a number of factors still weigh on the US currency.

The US Dollar tumbled to a monthly low against the Pound on Wednesday night as investors digested the latest Federal Reserve news.

The Fed did hike US interest rates as expected, but continued to indicate that the bank was only likely to hike US interest rates three times total throughout 2018. This disappointed hawkish USD traders hoping for four rate hikes instead.

On top of this, US Dollar investors are anxious about the US Presidency’s increasingly protectionist rhetoric towards trade, particularly towards China. There are growing concerns that this could spark a ‘trade war’ between the US and China.

GBP/USD Forecast: Brexit News and US Data Could Influence Late-Week Trade


The Pound to US Dollar exchange rate is unlikely to see another major shift in direction before markets close this week, but the pair could still be influenced by some news on Friday.

Friday will see the March EU summit underway, and it is possible that developments on the Brexit process or UK-EU negotiations will come from the summit. This could influence Sterling trade.

US news will be published during the American session, including US durable goods orders and new home sales stats from February. These reports could inspire US Dollar trade.

Next week’s data is more likely to be influential though and investors are now largely awaiting the key UK and US growth stats on the horizon.

Wednesday will see the publication of Q4 2017’s final US Gross Domestic Product (GDP) results, followed by final Q4 UK results on Thursday.

US inflation data could prove influential next week too, as US Personal Consumption Expenditure (PCE) figures will be published on Thursday.
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