- GBP to USD Exchange Rate Hovers Below 1.30 – Attempts recovery on Thursday
- Suspension of Property Funds Throttles Sterling – More expected to follow
- Mid-June FOMC Minutes Released – Policymakers hesitant to alter policy before Brexit
- Forecast: Conservative Leader Contest Continues – Top two are May and Leadsom
- Forecast: Bank of England (BoE) Decision Next Week – Rate cut expected on Thursday
GBP to USD Exchange Rate Gains Despite Optimistic NFP
The GBP to USD exchange rate looked to lock in gains as Friday’s European session drew to an end despite a better-than-expected Non-Farm Payroll report for June.
After rising away from its worst 31-year-lows of 1.2835, GBP/USD climbed towards 1.30. While the pair did not reach above this level, it trended widely in the region of 1.2960 at the time of writing.
Investors bought Sterling from its cheapest levels amid a relatively calm UK market, even despite the latest NFP figures driving confidence in US markets.
According to the report, the US economy rebounded from a shockingly poor May Non-Farm Payroll report (revised even further down to a grim 11,000) to create 287,000 new jobs in June.
While this data was collected before the UK voted to Brexit in late-June, it gave US markets hope that the US economy could weather Brexit damage.
(Previously updated 15:38 BST 07/07/2016)
GBP to USD Exchange Rate Flat on Thursday Evening
The GBP to USD exchange rate appears to have largely failed its Thursday recovery attempt, as it slipped back down away from 1.30. At the time of writing, it was trending in the region of 1.2930.
As expected, Sterling remained pressured throughout the day as more property funds suspended trading and more negative growth forecasts were released.
Notably, NIESR’s latest growth forecast claimed that the British economy had contracted in June, indicating that July onward could be even worse.
GBP/USD was boosted briefly earlier in the day by news that UK Chancellor George Osborne would work with US banks to keep London as a global finance giant. However, this and the urge to buy Sterling from its lows were not enough for a solid gain.
‘Greenback’ movement was solid when US markets opened on Thursday afternoon, but a little remaining risk-on movement kept it from being too bullish.
(Published 10:15 07/07/2016)
The GBP to USD exchange rate attempted and failed to recover on Wednesday as UK markets initially calmed before it was announced that more major property funds had chosen to suspend trader withdrawals.
However, the US Dollar weakened during the US session due to the latest dovish FOMC meeting minutes. As a result, Sterling has been able to recover against it slightly on Thursday. The pair currently trends in the region of 1.2980, but has been largely unable to remain above 1.30 since yesterday.
Pound (GBP) Flounders as Brexit Anxiety Continues to Dominate Markets
The Pound slipped lower on Wednesday as investors continued to panic over UK assets following the suspended trade of yet more major commercial property fund groups.
Bloomberg reported that following initial suspended withdrawals on Monday and Tuesday, an additional three more major funds froze trading on Wednesday in order to avoid a sudden devaluation as investors withdraw their assets from the funds.
‘Henderson Global Investors, Columbia Threadneedle Investments and Canada Life suspended trading in at least 5.7 billion pounds ($7.4 billion) of funds. Aberdeen Fund Managers Ltd. cut the value of a property fund by 17 percent and briefly halted redemptions so that investors who asked for their money back have time to reconsider.
Investors are pulling money from U.K. property funds as analysts warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU.’
Before this, the UK currency had been relatively muted earlier on Wednesday while markets and headlines focused on the Chilcot Reports, the in-depth inquiry into Britain’s involvement in the Iraq War.
Sterling advanced from its worst levels on Thursday morning however, as investors looked to buy the currency from its cheapest levels despite news that France had surpassed Britain as the world’s fifth biggest economy.
US Dollar (USD) Weakens on Dovish FOMC Minutes
The US Dollar had been relatively sturdy during Tuesday and Wednesday’s European sessions as investors eagerly sought out safer investments to store their assets amid panicked Brexit trade.
As a result, it gained against a number of riskier currencies as well as the Pound. US data has also been solid, as PMI printed strongly and ISM’s Non-Manufacturing Composite figure came in at a higher-than-expected 56.5.
However, as this data was largely collected before the historic Brexit vote at the end of June, it did little to influence markets.
Instead, US markets were undermined slightly by the Federal Open Market Committee’s (FOMC) June 14-15 minutes report. The report indicated that a large amount of policymakers were hesitant to raise interest rates due to the possibility of a Brexit. USA Today reported;
‘Fed officials did not provide a timetable for future increases, according to minutes of the Fed’s June 14-15 meeting. But they indicated that their decisions could play out over “coming months” and that they must review a range of positive data before acting again.’
GBP to USD Exchange Rate Forecast: Will the Buyback Continue?
Sterling is currently gaining from the worst of its 31-year-low against the US Dollar thanks to FOMC-inspired ‘Greenback’ weakness.
However, GBP/USD has struggled to return to levels above 1.30 and as a result it is unlikely the exchange rate’s recovery will be too considerable.
Trade suspensions of further property funds are likely to weigh on the Pound, but may not do so as much as previous suspensions have as markets now widely expect this to happen.
However, the Pound may recover a little more if Thursday evening’s top two Conservative nominees impress investors. MPs will be voting on the three remaining Leadership candidates throughout Thursday, with the winning two announced in the evening.
The three remaining candidates are frontrunner Theresa May, Michael Gove, and Andrea Leadsom. During Tuesday’s vote, May gained over 50% of votes from 330 Conservative MPs, while Leadsom came in second.
The top two will be decided today, and these two will go on to run campaigns for the Conservative membership. All Conservative members will then vote for the winner, who will by extension become David Cameron’s successor as UK Prime Minister.
At the time of writing, the GBP to USD exchange rate trended in the region of 1.2970, while the USD to GBP exchange rate traded at levels around 0.7710.
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