USD/GBP Rallies as US Trade Balance Surprises
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The initial catalyst for the softened Pound came by way of the UK Shop Price Index measuring monthly shop price inflation, which failed to reach economists’ forecasts. The index sank by -1.9% in July, bypassing the prediction of only -1.6%.
Furthermore the UK Industrial Production figures fell in June year-on-year only attaining 1.2%, unable to reach the 1.5% economists’ had forecast. In addition Manufacturing Production figures also slumped only reaching 1.9% in June, despite expectations to achieve 2.1%.
However, as the Pound softens in the currency market, other factors such as the vote for Scottish Independence will alter Sterling’s exchange rate.
Industry expert Michael Sneyd commented: ‘We have become much more conscious of the risks for the Pound. Partly around the fact that the data is softening slightly and also around Scotland’s referendum.’
Sneyd continued: ‘Long Sterling is the most-crowded position’ with regards to the G-10, (Group of Ten). ‘That does make Sterling quite vulnerable to negative data surprises.’
The Pound however is awaiting the Bank of England’s (BoE) interest rate decision on Thursday which should offer some direction into the central bank’s views of the stability of the UK economy. The Bank of England has recently been ambiguous in its statements regarding the hikes and therefore clarity is of the essence in this meeting.
Economist Simon Kirby suggested: ‘One thing that will happen as we converge, on that policy turning point is if communication is not clear, we will see volatility. On past performance there’s potential for some lack of clarity… it’s up to the MPC [Monetary Policy Committee] to be as clear as they can be and clearer than they have been over the last six months.’
In contrast the US has published Trade Balance figures on Wednesday which have reached lower than expected numbers at $41.5B, after being forecast to grow by $0.5B to -$44.9B. The US Dollar is likely to be able to gain higher in the currency market after a string of positive US statistics.
Thursday will prove a highly influential day for the USD to GBP currency pairing. Initial Jobless Claims, Continuing Claims and US Consumer Credit figures will reach publication, shortly after the UK Asset Purchase Target which will indicate the level of quantitative easing, and the highly influential Interest Rate Decision.
For now the US Dollar will remain bullish in the currency market following such favourable US data, however, the Pound will remain extremely volatile dependent on the outcome of the BoE meeting held on Thursday.
The GBP to USD exchange rate is currently residing at 1.6838.