Pound to US Dollar (GBP/USD) Exchange Rate Reaches Post-Referendum High but Could Keep Climbing
The Pound to US Dollar (GBP/USD) exchange rate has gone from strength to strength in recent weeks and with the US Treasury seemingly okay with the US Dollar’s (USD) weakness the pair could continue to climb.
Since markets opened this week at the level of 1.3855, GBP/USD has put in solid gains and on Thursday morning trended near the level of 1.4260. GBP/USD briefly touched on a high of 1.4320 too, its best level since the UK referendum in 2016.
Despite its recent highs and analyst concerns that the US Dollar has been oversold, the Pound to US Dollar (GBP/USD) exchange rate could make further gains.
This is because the US Dollar could simply remain unappealing, as the US Presidency ramps up signs of protectionism in trade and the US Treasury indicating that a weaker US Dollar was actually somewhat favourable.
Analysts have warned that if the US Dollar continues to weaken in the long-term it could even have a negative effect on the US economy. According to Scott Minerd from Guggenheim Partners;
‘If the Dollar slide were to accelerate, then foreign capital flows could decline rapidly, which would cause a sudden rise in interest rates which could shock markets and lead to unintended declines in risk assets like stocks which could damage growth,’
Pound (GBP) Exchange Rates Strengthen Following UK Job Market Report
The Pound (GBP) outlook rose this week, as November’s UK job market report beat expectations enough to bolster market bets that the Bank of England (BoE) will take a more hawkish tone on UK monetary policy in the coming year.
Wednesday’s job report revealed that the unemployment rate stayed at 4.3% as expected in the three months into November, but the employment change figure came in at a stronger than forecast 102k.
Britain’s latest wage growth data was also stronger than expected. UK wages excluding bonuses rose to 2.4% rather than remaining at 2.3% as forecast, while the print including bonuses remained at the forecast 2.5%.
The data continued the recent trend of indicating that Britain’s economy was performing stronger than expected despite the ongoing Brexit process.
On top of this, hopes that UK wages would close the gap with inflation sooner than expected saw analysts becoming more confident that the Bank of England (BoE) could hike UK interest rates more times than previously expected in 2018.
US Dollar (USD) Exchange Rates Find No Support in US Data
Wednesday’s US data wasn’t influential or impressive enough to cool the market bearishness surrounding the US Dollar.
Markit’s January PMI projections were mixed, with manufacturing and the composite print doing slightly better than expected but services falling short. The overall composite PMI projection slipped from 54.1 to 53.8 rather than the expected 53.5.
December’s US existing home sales results were slightly disappointing too, seeing a change of -3.6% month-on-month.
Pound to US Dollar (GBP/USD) Forecast: Q4 Growth Projections Could Influence Outlook
The Pound to US Dollar (GBP/USD) exchange rate could see further gains before markets close for the week, depending on the results of key UK and US data due on Friday.
Gross Domestic Product (GDP) projections from Q4 2017 for both nations are due throughout the day and are typically influential datasets.
Britain’s Q4 growth is currently forecast to have remained at 0.4% quarter-on-quarter and have slowed from 1.7% to 1.4% year-on-year.
Meanwhile, US growth is forecast to have slowed slightly from 3.2% to 3% quarter-on-quarter.
If UK growth impresses investors the Pound outlook will rise further as markets continue to speculate that Britain’s economy has weathered the early Brexit process better than expected.
However, if UK growth disappoints and US growth beats expectations, GBP/USD could potentially rebound from its recent highs, particularly with many analysts still calling the US Dollar oversold.
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