The Pound Sterling to US Dollar (GBP/USD) exchange rate is forecast to firm over the course of next week if US economic data continues to come in below expectations and the UK economy is shown to have expanded strongly in the final quarter of 2014.
At the start of next week the Pound will likely experience little in the way of movement due to a lack of market moving economic data releases.
Data out of the USA meanwhile is expected to support the ‘Greenback’. Existing home sales are forecast to have risen to 5.1 million in the first month of the year and the February Dallas Fed Manufacturing Index is expected to rebound strongly from the decline recorded in January.
Tuesday too is also devoid of any market moving UK data so again any movements will depend on events in Europe and the release of flash US Composite and Services PMIs. Service sector activity in the world’s largest economy is expected to have improved.
Consumer spending accounts for a large part of the US economy so any improvement in the service sector will be seen as positive.
Also published will be CB Consumer confidence data, which is expected to show a slight fall.
Wednesday will also be a quiet session for the currency pair, as the only UK data release will come in the form of BBA Mortgage Approvals. US housing data will also be released with new home sales expected to have risen in January.
The main event for the week will occur on Thursday when the London based Office for National Statistics (ONS) releases its second estimate for Gross Domestic Product (GDP). Economists expect GDP to come in at 0.5% on a quarterly basis, below the first estimate of 0.7%. On an annual basis however, GDP is forecast to have risen from 2.6% to 2.7%.
Also released will be business investment data. If that shows another decline then the Pound could soften on concerns of a slowdown in investment.
Friday’s session sees the publication of US GDP estimate data. If the report shows that the US economy did not expand as strongly as first estimated we can expect the US Dollar to fall.
Investors should also keep an eye on geopolitical events. An escalation in the wars in Ukraine or the Middle East could increase demand for safe haven assets.
Weak Eurozone data could also support the ‘Greenback’ as traders look for safer investments.
Events in the commodity markets will also impact the exchange rate as oil prices impact upon the US currency.
Key Events for the GBP/USD exchange rate
Monday February 23 – US Existing Home Sales, US Dallas Fed Manufacturing Index
Tuesday February 24 – US Consumer Confidence
Thursday February 26 – UK GDP estimate
US Jobless Claims, Inflation
Friday February 27 – US GDP estimate
