January 21, 2020 - Written by John Cameron
STORY LINK GBP to USD Exchange Rate Recovers Last Week’s Losses as UK Job Data Softens Bank Speculation
Following a week of poor UK data in which the Pound was held back by Bank of England (BoE) interest rate cut bets, the British Pound to US Dollar (GBP/USD) exchange rate has seen a jump in demand today. The Pound is being supported by the latest UK job stats which are dousing Bank of England bets for now, while demand for the US Dollar has calmed following Friday and Monday’s gains.
Last week saw GBP/USD putting in mixed movement after opening the week at the level of 1.3065. GBP/USD briefly jumped to a high of 1.3112 towards the end of the week, but after that the pair fell to close the week near the level of 1.3015 – half a cent lower.
Yesterday, GBP/USD dipped lower as the US Dollar rebound continued and the pair touched on a January low of 1.2968.
However, today the latest UK data combined with a more mixed US Dollar has led GBP/USD higher again. At the time of writing, GBP/USD is trending near the level of 1.3063.
GBP Exchange Rates Boosted as UK Job Market Report Softens Bank of England (BoE) Speculation
Last week saw the Pound weighed down by numerous poor UK ecostats, as Bank of England (BoE) interest rate cut bets rose.
However, with just one stronger than expected result today, market concerns have lightened notably.
Tuesday’s European session saw the publication of Britain’s latest job market results. The employment change and wages including bonuses results were both better than expected, dousing some concerns about UK economic activity in late-2019.
Bets of a BoE rate cut as soon as next week fell as a result of the news, and the Pound has been able to sustain some gains as a result.
Pound investors are now anticipating PMIs due later in the week to firm bets on whether or not a BoE rate cut is likely next week. According to Jordan Rochester, Analyst at Nomura:
‘Risk reward is not in favour of chasing GBP lower into a rate cut: With the BoE rate cut priced with a 66% chance, the risk reward is that they delay their decision until later this year to evaluate how the data and fiscal stimulus plays out. GBP/USD would naturally head higher as a result,’
USD Exchange Rates Steady Following Last Week’s Rebound
At the end of last week, the US Dollar experienced a strong rebound in demand.
Stronger than expected US retail sales and housing stats doused market concerns that the Federal Reserve
was coming under pressure to cut US interest rates this year.
However, while the US Dollar continued to advance yesterday, the currency’s bullishness has run out of steam for now.
The US Dollar was also weakened by the latest rise in demand for its rival the Japanese Yen (JPY).
While both currencies are safe haven currencies, the Yen often benefits more from notable risk-off movements due to concerns that the US economy could be impacted.
Markets became more risk-averse amid news that a coronavirus had broken out from central China. It caused concerns that economic activity or travel in China could be notably impacted, which made investors want to buy safer assets.
Some analysts believe the risk-off move will be limited, but still advised caution. According to Kit Juckes, Analyst at Societe Generale:
‘You’ve got a stronger yen, a stronger Swiss franc and risk aversion is setting in across everything,
It would be very surprising if it was a trend-changer in terms of where things go from here, but it is early days.’
GBP/USD Exchange Rate Forecast: Will Bank of England (BoE) Bets Remain Low?
The Pound has seen a boost in demand today as stronger UK data softens concerns that the Bank of England (BoE)
will cut UK interest rates as soon as next week.
However, Sterling’s potential for gains is limited as most still bet on a rate cut, and even if there is no rate cut next week a rate cut is still expected sometime this year.
As a result, investors are still carefully watching for further incoming UK data.
UK factory and retail data from the Confederation of British Industry (CBI) will be published tomorrow, but the most influential data of the week for Pound investors will be Friday’s UK PMI results.
If Britain’s PMI projections fall short of expectations they could worsen concerns that poor performance from late-2019 is carrying into this year. This would cause BoE interest rate cut bets to rise again and the Pound could be in for fresh losses.
US Dollar investors, on the other hand, will keep a close eye on shifts in market risk sentiment.
Upcoming US data, such as tomorrow’s US housing data and Fed indexes due over the coming days could also influence the Pound to US Dollar exchange rate.
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TAGS: Pound Dollar Forecasts