The Pound was trading close to its best level in five years against the US Dollar as comments made by Bank of England Deputy Governor Charlie Bean increased speculation that an interest rate rise will occur before the end of the year.
In an interview over the weekend Mr Bean said that he would welcome a rise in interest rates as it would be symbolic sign that the UK’s economy was finally returning to normal. The comments add to those made last week by Governor Mark Carney and bolstered the Pounds appeal to investors.
“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect,” the BoE governor said in a speech last week.
The US Dollar was unable to make gains against the Pound despite data showing that industrial and manufacturing production in the world’s largest economy increased more than forecast in May. According to data released by the Federal Reserve output from US factories, utilities and mines increased last month by 0.6%. Economists had been forecasting a rise of 0.5%.
Year on year manufacturing output was up 3.6% whilst industrial output was up by 4.3%.
Despite the positive data and increased demand for safe haven assets as a result of concerns over the conflict in Iraq and rising tensions between Russia and Ukraine the ‘Greenback’ was unable to gain ground after the International Monetary Fund cut its growth forecast for the USA.
The IMF now sees the US economy growing by 2% this year, down from its previous forecast for growth of 2.8%. The IMF left its expectations for next year unchanged at 3%. The group said that the Federal Reserve has scope to leave interest rates at 0% longer than investors expected, comments which disappointed the markets.
“Momentum faded in the U.S. economy early this year as a harsh winter conspired with other factors such as a drawdown in inventories, a sluggish housing market and slower demand. While a rebound is under way, it’s providing “only a partial offset” to the weakness that led to a contraction in the first quarter,” IMF economists wrote.
Tuesday looks set to be a busy day for the GBP to USD currency pair as a number of market moving data reports are due for release.
Key data releases for GBP to USD this week
Tuesday June 17th – GBP –Inflation rate YoY and MoM
USD- Inflation rate, building permits and chain store sales
Wednesday June 18th – GBP- MPC meeting minutes
USD- current account, QE, Fed interest rate decision
Thursday June 19th – GBP – Retail Sales YoY, MoM,
USD- Initial and continuing jobless claims
GBP to USD Exchange Rate update – 17/06/14
The Pound was trading just off of a five year high against the US Dollar on Tuesday as the UK currency continued to find support from expectations that the Bank of England could raise interest rates by the end of the year.
The US currency meanwhile managed to shake off some of yesterday’s losses as investors focused on better-than-forecast manufacturing and industrial production data rather than the International Monetary Fund’s decision to downgrade its growth forecast for the US economy.
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