- Pound US Dollar Forecast: Friday’s US NFP Reports Hold Key to Movement
- US Dollar Finds Further Safe-Haven Support – Safe-haven demand appears to rise as gold reaches highest levels seen in at least a year.
- Suspension of Commercial Property Investments Fund Withdrawals Sparks Panic – Funds had to cease trading in an attempt to curtail any severe property depreciation.
- Pound Continues to Struggle in Post-Brexit Economic Landscape – Foreboding BoE stability report eludes to Brexit concerns ‘crystallising’.
The Pound US Dollar exchange rate has seen woeful lows of around 1.28 today but the pairing appears to be recouping some of its loses as the day goes on.
A suspension of withdrawals from three major commercial property funds has spurred panic somewhat at the emerging real-world consequences of the decision to Brexit.
The Pound has felt further downward pressure in reaction to the Bank of England’s (BoE) July financial stability report and as a result has posted some substantial losses against the majors today, and over yesterday’s session.
Unflattering data releases out of the US appear to be non-impactful as high levels of uncertainty keep the US Dollar in demand. Analyst’s supporting the likelihood of a US Federal Reserve rate hike in reaction to improving economic conditions in the US have kept USD demand fairly high after hopes of a hike were dashed in the wake of the Brexit.
Currently the Pound US Dollar exchange rate trades at 1.2941.
Pound (GBP) Wilts Under Disparaging BoE Stability Report and Commercial Property Fund Freezes
The Pound has struggled continually since the UK voted to depart from the European Union and has dropped against the US Dollar to levels last seen more than 30 years ago.
Yesterday heralded the release of the Bank of England’s (BoE) July financial stability report that focuses on the UK economy post-Brexit. The report highlighted key areas for economic concern going into post-Brexit Britain, such as the financing of the UK’s current account deficit, which relies on a constant influx of direct foreign investment – if investors are too nervous to buy in it could spell trouble.
Other areas of concern outlined in the report were the commercial real estate market, the level of household debt in the UK as well as the financial vulnerability of households, a general downturn in European and global growth and any possible fragility in the financial markets that could be exacerbated due to emerging circumstances.
A suspension of withdrawals from three major commercial property investment funds has caused some panic as the funds take steps to negate any major declines in UK commercial property prices. If these funds were forced to return investor money in a more timely fashion then it could spell severe downturns in property prices as the funds would have to sell assets at ridiculously undervalued prices.
The British Retail Consortium (BRC) just published its Shop Price Index and the data shows a continuation of falling food prices, with prices having dropped for 38 months consecutively. The BRC stated it was an ‘extraordinary run of deflation’. It is unlikely that prices will continue to fall however, 40% of the food eaten in the UK is imported and if the Pound remains devalued then we could expect to see a sharp rise in import prices, and as a result food prices.
Uncertainty Keeps Safe-Haven Demand for US Dollar Afloat after Weak Ecostats
Safe-haven demand appears to have risen following the BoE’s grim financial stability report, with gold shooting up to its highest levels seen in at least a year.
Demand seems capped however as investors mull the unlikelihood of a near-term US Federal Reserve rate hike, although hope has returned for a rate rise by the end of the year as the US economy appears to be rolling with the Brexit-punches thus far.
Two ecostats out of the US yesterday recorded worse than forecast declines as both factory and durable goods orders see a marked decline. The weak data did little to stifle safe-haven demand for the US Dollar but has stopped the ‘Buck’ making any significant gains against any currency, which can be seen in the Pound US Dollar exchange rate’s relatively small 0.20% depreciation.
Further increase in demand for the US Dollar may be spurred by optimistic comments from analysts regarding Friday’s NFP and employment rate reports and the likelihood of favourable prints. If both print decidedly positive then we could expect more calls for a rate hike.
US Dollar Value Rests on Employment Data, Pound US Dollar Exchange Rate May Rally on Strong UK Ecostats
The US ISM non-manufacturing (services) PMI will be released in today’s session and is forecast to see a decent increase. If this data prints well then we could certainly expect to see an increase in USD demand and further gutting of the Pound US Dollar exchange rate.
However the all-important US data for this week will be Friday’s employment reports. Non-farm payroll and unemployment rate data hold the key to any severe movement for the ‘Buck’ as we saw from the previously woeful NFP report wounding the US Dollar substantially.
The UK has a small selection of potentially impactful data set to be released tomorrow. Year-on-year industrial and manufacturing production are expected to decline in reaction to the Brexit and we could almost guarantee further depreciation for the currency if the data prints even worse than forecast. A NIESR GDP estimate is also lined up for release tomorrow afternoon and could be expected to make for grim reading, if the report shows a severe drop in estimated GDP then the Pound will most certainly feel the pressure.
However, now it appears clear that the Bank of England have made efforts to curtail the Brexit impact on the UK economy. If the Government could do the same then we could possibly see a stemming of the recent depreciation of the Pound US Dollar exchange rate.
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