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GBP to USD Exchange Rate Holds Most Weekly Gains on Bank of England (BoE) Speculation

June 8, 2018 - Written by Toni Johnson

This week’s US data has not been strong enough to keep pressure on the British Pound to US Dollar (GBP/USD) exchange rate, as Sterling has benefitted from UK data and Bank of England (BoE) comments while investors have opted to sell the US Dollar from its recent highs.

After opening this week at the level of 1.3348, GBP/USD has spent most of the week climbing. While GBP/USD was not able to hold Thursday’s fortnight high of 1.3468, the pair still looked on track to sustain notable gains throughout the week. At the time of writing on Friday, GBP/USD trended near the level of 1.3415.

GBP Holds Gains as Bank of England (BoE) Bets Rise

Sterling began this week’s climb against the US Dollar on Tuesday, when Britain’s May services PMI from Markit was published and came in higher than analysts expected.

While the outlook for the services sector was clouded by Brexit uncertainties and a weak inflow of new work, investors were still pleased by news that the UK services sector had seen a stronger rebound from Q1’s weak performance than expected.

However, Sterling’s gains against the US Dollar were more easily sustained on Thursday as Bank of England (BoE) Deputy Governor Dave Ramsden offered up comments perceived as hawkish.

Ramsden expressed confidence that recent data reflected the bank view that Britain’s economy would rebound from the slow performance seen in Q1.

His insistence that the bank view was still accurate boosted market hopes that the bank still planned to hike UK interest rates at least once this year – with markets currently betting that August is the most likely month for a hike.

Ramsden said on Thursday:

‘… the data we have had so far suggests our interpretation of the slowdown in the first quarter as temporary looks to be being borne out. Consumer confidence and consumer credit both picked up in the latest data, as did retail sales and several business surveys. That included the latest services PMI (purchasing managers’ index) output balance, representing 80% of the economy. So far at least our May judgement looks on track.’

As Ramsden is typically seen as one of the bank’s more cautious policymakers, his comments were notable and Bank of England rate hike bets rose. This kept Pound demand solid.

He was also more optimistic about Britain’s wage outlook, which had been among the primary reasons for his caution for most of 2017.

USD Selloff Continues as Bullish Sentiment Fades

While the US Dollar’s support improved a little towards the end of the week due to market demand for ‘safe haven’ currencies, the US Dollar was still on track to see weaker performance this week.

Investors have found the US Dollar less appealing since the Federal Reserve’s May meeting minutes were published.

The Fed showed caution on monetary policy, weighing on hopes that the bank could hike US interest rates as much as four times throughout the year.

With three 2018 rate hikes and generally strong US economic performance already priced into US Dollar trade, investors have had little reason to keep buying the US currency.

The US Dollar saw support from better-than-expected US trade data on Wednesday, as well as market ‘safe haven’ demand. However, ultimately US Dollar trade has not been driven enough to help it recover against Sterling gains.

GBP/USD Forecast: Inflation and Federal Reserve Decision in Focus

Next week could be a pivotal one for the Pound to US Dollar exchange rate, with key UK and US ecostats due throughout the week and the Federal Reserve set to hold its June policy decision on Wednesday.

While the US Dollar’s rally has seemingly come to an end, the currency could still see another boost in demand depending on how next week’s US data and Fed meeting unfold.

US Consumer Price Index (CPI) data from May will be published on Tuesday, followed by the Fed decision on Wednesday, May retail sales on Thursday and Michigan University’s June consumer sentiment survey on Friday.

If US inflation is higher than expected, or if the Federal Reserve hints at a faster pace of US interest rate hikes, the US Dollar would strengthen.

To top all this off, next Tuesday is also expected to be the date the US-North Korea summit is finally held. If the summit goes well, investors may be more eager to buy the US Dollar.

GBP/USD movement will also be influenced by UK data next week. Tuesday’s UK job market stats and Wednesday’s UK inflation will be particularly influential to Bank of England (BoE) rate hike bets and the Pound.
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