- Pound Sterling US Dollar Hits 1.3245 – US Dollar Pound Sterling Hits 0.7550
- UK Markit Services and Composite PMIs Beat Expectations – Pound See’s Slight Gains
- BoE Rate Decision Due at Noon – Dovish Outlook Expected
- On the Horizon – US Initial Jobless Claims and Markit PMIs
Update 03/08/2017 12:10: Pound Drops as BoE Lowers Growth Forecast
The Bank of England has since announced that it will (as forecast) be maintaining interest rates at 0.25%, but critically, however, the BoE has also announced that they have lowered growth forecasts from 1.9% in May to 1.7% in August.
The Pound to US Dollar (GBP USD) exchange rate remained predominantly steady this morning with a brief upward jump resulting from upbeat UK composite and services PMIs.
The IHS Markit services PMI demonstrated a climb from 53.4 in June to 53.8 in July, beating market expectations of 53.6, whilst the composite reading printed at 54.1, up from the previous (and predicted) 53.8.
New work growth has since recovered from the nine-month slump of June and job creation has climbed to its strongest point since January 2016.
On the other hand, business expectations for the future have remained somewhat weak in the wake of political and economic uncertainty surrounding Brexit – with the latest reading printing at the lowest it’s been since the end of 2012.
Overall Sterling responded positively to the news, though with a dovish Bank of England rate meeting predicted for today, its ability to capitalise on such news remains limited.
Bank of England Meeting Outlook – What Can We Expect for GBP USD?
Markets are currently predicting that the Monetary Policy Committee (MPC) will vote to maintain interest rates at current levels, however, there may still be room for Sterling to make some gains should more members of the MPC turn hawkish than previously anticipated.
In June’s meeting three members of the MPC voted for a rate hike – an event that drove immediate demand for Sterling.
Since then, however, Kristin Forbes (one of the hawkish voters) has ended her time on the committee and, in theory, reduced the number to 2. UK inflation has also begun to soften – something that has raised investor anxiety that the MPC may be driven even further away from tightening policy.
In this respect, GBP USD will likely dip if hawkish votes remain limited (as currently forecast), however, if the accompanying statement from the meeting contains any additions that may be considered hawkish, Sterling could rally.
US Dollar (USD) Wracked by Political Anxiety – Is Tax Reform Possible?
The US Dollar has been pummelled lately by a sequence of political manoeuvrings and controversies, notably the recent firing of Whitehouse Chief of Staff Reince Priebus, the hiring and subsequent firing of Anthony Scaramucci as Communications Director, and Sean Spicer’s announcement that he will be stepping down at the end of August.
Ultimately markets are concerned that the constant shuffling is indicative of chaos within the Republican Party, especially considering the recent failure in the passing of the ‘skinny repeal’ bill.
Investors are anxious that US President Donald Trump’s highly anticipated tax reform will also be slowed, if not stalled completely, in their attempt to move through Congress – something that has driven some investors away from the ‘Greenback’.
Indeed, Senator Lindsey Graham voiced these doubts, asserting that Congress would be unable to pass tax reform if it couldn’t first respond to Obamacare.
Graham stated: ‘We need to keep trying on healthcare. If we fail on healthcare, we’re going to fail on taxes’.
GBP USD Forecast: US Data Forecast to be Mixed
Whilst the data calendar remains quiet later into the day for Sterling, the US is due to publish a range of significant data releases.
The US ISM services/non-manufacturing composite takes the cake in terms of influence, and is currently forecast to drop from 57.4 to 56.9, along with US durable goods orders, which are predicted to drop from initial estimates of 6.5%. There may be good news on the unemployment and factory orders front, however, with US initial jobless claims forecast to drop from 244k to 243k, continuing claims from 1964k to 1958k and factory orders forecast to leap from -0.8% to 3%.
Whether this will be enough for the US Dollar to capitalise on a dovish BoE remains to be seen.
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