GBP to USD Exchange Rate weakens Dollar as ECB rate decision dampens sentiment

The US Dollar advanced to session highs against the Pound and Euro on Thursday afternoon as demand for the safe haven currency increased due to the release of weaker-than-expected data out of the UK and US, and as the European Central Bank played down the risk of deflation in the Eurozone.

Investors had spent much of the session awaiting the outcome of the ECB policy meeting with most expecting that the Central Bank would take some action to counter the threat of deflation in the Eurozone. Instead, ECB policy makers kept rates unchanged, but added that they had not ruled out further policy measures.

ECB President Mario Draghi’s comment that; “My biggest fear is actually to some extent a reality. That is the protracted stagnation we are already seeing,” did little to ease investor nerves.

Data out of the United States also caused concern among investors after coming in weaker-than-expected.

The number of US citizens claiming unemployment benefits climbed more-than-expected last week and the US trade deficit widened unexpectedly.

According to the Washington based Labour Department the number of people claiming unemployment benefit last week climbed by 16,000 to a seasonally adjusted level of 326,000. The number was more than the 319,000 economists had been expecting.

A separate report showed that the US trade deficit climbed to its highest level in five months in February as exports fell and imports rose. The deficit widened to $42.3 billion, an increase of 7.7% on the previous months figure.
The ‘Greenback’ did find support from a better-than-forecast ISM Non-manufacturing PMI report.

Earlier in the session the Pound was softened by the release of a softer than forecast Services PMI report.

Friday sees the publication of the eagerly anticipated nonfarm payrolls data which is expected to give a clearer picture as to the true strength and performance of the world’s largest economy. A weak result is likely to send the Dollar lower against its peers.