The pound fell heavily against the dollar this week, following the US Federal Reserve’s confirmation of an end to its six year quantitative easing programme and dovish comments from Bank of England’s Deputy Governor regarding UK interest rate rises.
Markets were understandably cautious ahead of Wednesday’s FOMC announcement, due to Tuesday’s US durable goods orders. With a lack of UK data GBP/EUR this week, the market found its direction from German CPI and unemployment news.
GBP/USD started the week holding above 1.61 and made gains against the dollar, as US durable goods orders fell for a second consecutive month. The Fed’s decision to end its monetary stimulus programme sighted improvements to the US labor market, and broader strength in the US economic recovery, in its rationale.
By James Mills at UKForex, an international money transfer service
This signalled a change from previous dovish comments to a more hawkish view, with the dollar gaining from this. Investors also reacted to Bank of England Deputy Governor Sir Jon Cunliffe’s comments, where he stated his belief that the banks will keep UK interest rates low for “longer than previously thought”. These comments, combined with the end to US QE, further supported market expectations for a US rate rise before the UK. As such GBP/USD tumbled to a weekly low of 1.5970.
Thursday saw the release of US GDP for the third quarter, including jobless claims and personal consumption figures. Annualised US Q3 GDP came in at 3.5%, forecast by 0.5%, but initial/continuing jobless claims rose 287K and 2.384M, respectively. Personal consumption expenditure price also fell to 1.2%. You would have thought the improvement to GDP would have spurned further advances in the dollar, but the jobs and consumption data held back any advances.Friday’s US CPI numbers were just as forecast, leaving GBP/USD to end the week near its low of 1.5970.
GBP/EUR traded quietly throughout the week, as a lack of UK data and only one or two key pieces of news from Europe kept volatility down. The main movements came on Friday as a fall in m/m retail sales from Germany, to -3.2%, and a drop in the annualised eurozone core figure to 0.7% saw GBP/EUR rise to 1.2750.
Looking ahead to now and next week, today sees manufacturing PMI numbers from UK, Europe and the US released. Tuesday sees UK construction PMI and US trade balance and factory orders figures.Wednesday tops the PMI data of UK and European service numbers, along with ISM manufacturing PMI from the US. Taking into account the recent BoE Deputy Governor’s comments it’s likely thatWednesday’s UK interest rate decision and MPC statement will lead to a non-event, although we may see further dovish comments from other MPC members. The week ends with US non-farm payrolls, set to be a key release. With the release of a number of economic indicators from the US, it is likely markets will be keeping a close eye on the States to see if the Fed’s hawkish views are justified.
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