The Pound to US Dollar exchange rate is currently trading close to a 7-week low due to speculation that Wednesday’s outperforming US GDP report could influence the Federal Reserve to start hiking interest rates sooner rather than later.
There is potential for Sterling to fall even further versus the ‘Greenback’ if today’s data releases point towards strong US jobs growth and subdued British manufacturing output.
Markit’s purchasing managers index of manufacturing activity is forecast to have fallen slightly from 57.5 in June to 57.2 in July. This would represent another fairly upbeat month of output and, if job creation remains close to record highs, could give the Pound a little bit of a boost on the currency markets. Anything above 58.0 could be even more advantageous for the Pound.
However, a softer-than-anticipated result could sting, leaving Sterling at risk of sliding further against the advancing ‘Greenback’.
This afternoon’s US non-farm payroll report for July has the potential to have an even greater impact on the Sterling to US Dollar exchange rate. Traders are primed for a reading of 231,000, significantly lower than June’s score of 288,000, but still above the 200,000 mark that is often considered an important benchmark for the American labour market.
Investors will be looking for a print of 250,000 or above to drive the US Dollar higher. But anything below 200,000 has the potential to put Federal Reserve rate hike bets on hold and therefore dampen demand for the ‘Greenback’.
Technical support for GBP/USD exists at 1.6830 and 1.6720 and technical resistance will be found at 1.6910 and 1.6970.
During yesterday’s session Sterling tumbled by around a third of a cent in reaction to some soft domestic data releases. GfK’s index of consumer confidence fell to -2, marking the first time in six months that the survey has printed in negative territory. Nationwide’s house price index rose by just 0.1%, which is the smallest increase since April last year. And Bank of England policymaker Ben Broadbent hinted that the Pound may be overvalued by around 10%.
Across the pond in the United States it was reported that initial jobless claims remained relatively low at 302,000, which boosted the appeal of the ‘Greenback’. However, sentiment towards the US Dollar softened slightly later on in the afternoon when the Chicago manufacturing PMI came in at 52.6, significantly lower than the 62.6 that analysts had predicted.
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