Foreign exchange markets witnessed another trend higher in the British pound to dollar conversion rate's performance last week. Suggestions that Pound Sterling had been excessively weakened by Brexit fears saw GBP/USD making a strong rebound for most of last week.
As currency exchange markets started the new week, the British pound to dollar exchange rate extended last week's gains by rising another 75 pips.
With little in the way of sterling-related economic data, all eyes were on today's ISM Manufacturing PMI released Monday afternoon.
Correctional trading on easing Brexit fears allowed the GBP/USD exchange rate make a strong recovery last week.
Cable rose from 1.4403 at the beginning of the week to around 1.4653 by Friday.
Throughout most of the week, the ‘Leave’ campaign were perceived to have been undone by the previous week’s developments favouring the ‘Remain’ campaign.
The Organisation for Economic Co-operation and Development (OECD) became the latest high-profile body to forecast a negative impact of a split from the EU, while David Cameron joined forces with one-time opponent and ex-trade union leader Brendan Barber to warn of the impact a ‘Brexit’ would have upon British workers.
However, uncertainty returned to a degree by the end of the week as a group of eight economists forecast that a ‘Brexit’ could boost GDP by 4% and the latest YouGov poll showed that the ‘Leave’ campaign had a 1% lead.
The latest consumer confidence scores further undermined the Pound vs dollar exchange rate’s recent gains, with the GfK confidence index dropping from 0 to -3, -2 points lower-than-forecast.
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Latest Pound/Dollar Exchange Rates
On Tuesday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.864
At time of writing the pound to euro exchange rate is quoted at 1.158.
The GBP to GBP exchange rate converts at 1 today.
Please note: the FX rates above, updated 23rd Apr 2024, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.
GBP to USD Exchange Rate Climbs as FED Stay Dovish
The foreign exchange markets started to view repeated claims by several Federal Reserve officials that the US economy remains resilient as being rather tenuous following another week of poor data.
After a -3% drop previously, March’s durable goods orders only managed to grow 0.8%, rather than the 1.9% forecast, while consumer confidence dropped much further than the -0.2 points predicted, instead falling from 96.2 to 94.2.
The Federal Reserve left interest rates on hold, but the dovish accompanying policy statement failed to hearten investors, especially as Gross Domestic Product grew by just 0.5% in the first quarter, -0.2% basis points below the forecast slowdown.
With little data on offer, Pound Sterling exchange rates could see referendum developments contributing most momentum over the coming week.
UK data doesn’t kick in until Wednesday - when the Market UK manufacturing PMI for April is released - traders will be hoping for an acceleration in growth, as the manufacturing sector’s anaemic performance is of particular concern to economists.
The construction, services and composite indexes follow later in the week, making up all of the UK data likely to cause a significant impact.
Of course, Brexit fears are likely to continue to drive sentiment; the latest attempted campaign moves by the ‘Leave’ campaign have been mostly met with indifference from traders, although the YouGov poll suggests that voters are more easily swayed.
Fed Unwillingness to Hike Rates could Keep US Dollar (USD) Exchange Rates Weak
The dovish language of the Federal Open Market Committee’s (FOMC) latest policy statement has seen many analysts predicting a rate hike in June is off the table.
One of those suggesting a delay to monetary policy tightening is Deutsche Bank Chief US Economist, Joseph LaVorgna, who claims that the lack of an assessment regarding ‘the balance of risks’ tells him ‘that June is effectively off the table. They did not do enough, they have to put that statement back in for them to hike rates.’
[The Fed is] responding to market conditions. It's [making] it harder for them to take rates to where they should be. The rate should be higher but the Fed is having a hard time getting it where most economists say they already should be.
Multiple speeches by Fed officials, including Dudley, Lockhart, Williams and Mester, could help to raise hopes of an imminent hike, but otherwise weak sentiment could keep USD/GBP weak over the coming days.
Monday’s ISM manufacturing index, Wednesdays ISM non-manufacturing composite and Friday’s Non-Farm Payrolls will need to rise significantly in order to restore flagging confidence in the US economy.
British Pound to US Dollar Exchange Rate Forecasts From Leading Institutions
ABN AMRO suggest the current trend higher in the pound to dollar exchange rate could stall ahead of the Brexit poll in June 2016:
"Investors have chosen to take profit on short positions in the GBP spot market, while maintaining their hedge against a possible Brexit via the currency options market."
"In our view, GBP is still likely to head lower ahead of the UK referendum as polls are still very close."
"Our base case assumes that there will be a vote to remain in the UK, so GBP/USD should subsequently recover to 1.47 at the end of this year."
SGBL notes the range trading in the GBPUSD pairing right now:
"GBP/USD is still swinging between "Brexit" and "Bremain"! Until the referendum day on June, concerns are expected to keep the pound highly fluctuated. As for today, we forecast 1.4480/1.4680."
Citi analysts comment on the current uptrend in the pair:
"GBPUSD’s resilience above the key 1.4515 pivot sees our CitiFX Flows team reporting GBP buying for a third consecutive day with next key resistance seen at 1.4688."
"Note that the sterling gains appear to be in part technical (series of lower highs appear to have ended) and part fundamental (as the period of ultra-low inflation in the UK ends)."
Longer-term, the US dollar exchange rate's outlook will be governed by central bank policy and any FED interest rate hikes.
TD Economics recently wrote on the hike timing for 2016:
"The Fed will ultimately have its decisions rest on domestic fundamentals. Since we believe the data will deliver on this front, a pass in June heightens our conviction of a rate hike in either July or September. We are leaning towards the latter since the July policy meeting does not have a scheduled press conference. Although this does not preclude the Fed from raising rates in July should the data warrant, the decision would need to be very well telegraphed in order to avoid disrupting markets with a surprise decision."
Key GBP/USD and EUR/USD Impacting Events in This Week's Forex Calendar
This week's key USD-related events include the FOMC Member Dudley Speaks (source). Final Manufacturing PMI (source). ISM Manufacturing PMI (source). Construction Spending (source). ISM Manufacturing Prices, Loan Officer Survey (source). IBD/TIPP Economic Optimism, FOMC Member Mester Speaks, Total Vehicle Sales, Final Services PMI, ISM Non-Manufacturing PMI, Factory Orders, Crude Oil Inventories (source). Challenger Job Cuts, Unemployment Claims (source). Natural Gas Storage, FOMC Member Bullard Speaks, Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate and finally the Consumer Credit.