by Jon Beddell
Foreign Currency Market Update – GBP / USD Update
Sterling continued to benefit from the Dollar’s broad based weakness last week. The big move was over on Monday as we surged from 1.57 to 1.59, and the rest of the week was spent consolidating those gains. It is no coincidence that the rally accelerated from the start of July, just as the stock markets were rebounding strongly off their 2010 lows. The general background of buoyant investor risk appetite has been a major boost for sterling as traders sell the US dollar and buy riskier currencies that benefit most from economic recovery. However, with interest rates still on hold at 0.5% there is little investment case in buying the Pound. The Bank of England held rates steady again last week, and we will have to await publication of the meeting minutes (9:30am on Wednesday August 18th) to see if there has been any shift in the 8-1 “no change” vote. The monetary policy committee are likely to stick to a cautious tack in the short term as economists closely monitor economic statistics for any perceptible reaction to government budget cuts. As if to underline the anticipated effect of the cuts, data released on Friday showed a 0.5% decline in industrial production in June, compared to an expected rise of 0.2%. The market was also disappointed with a smaller than expected 0.3% rise in manufacturing output. Despite Sterling’s tentative progress over recent weeks the spectre of a “double dip” still looms large in investors’ minds. As long as stocks are rising and the Pound is firm, traders are willing to continue to buy into the recovery theory, but it would only take a few bad news items to damage confidence and send the Pound reeling and traders flooding back into the safe haven of the Dollar.
The technical outlook remains positive. We are trading at six month highs, and are now preparing to attack the resistance at 1.6070. A close above there would open the way to levels like 1.6275 and 1.6460. Meanwhile, it would take a break below 1.5500 to do serious damage to the up trend.
Key data from the UK this week includes trade balance data at 08:30 on Tuesday, and the Bank of England’s quarterly inflation report at 09:30 on Wednesday.
The Federal Reserve make their latest interest rate announcement on Tuesday, and are widely expected to keep rates on hold at 0.25%. Trade balance figures for June are released on Wednesday.
Related posts:
- Daily Foreign Exchange Rate Forecast – The Pound rallies to a fresh five month high against the U.S Dollar
- FX112 Foreign Exchange News Flash – Sterling rallies in the build up to the BoE rate announcement
- Daily Foreign Exchange Rate Forecast – The Pound rallies to a six month high against the U.S Dollar, five month high versus the Euro
