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GBP/USD hits fresh 4-1/2 month lows on U.K. retail sales
The pound fell to fresh four-and-a-half month lows against the U.S. dollar on Thursday, after the release of disappointing U.K. retail sales data and as the minutes of the Federal Reserve's latest policy meeting continued to support the greenback.
GBP/USD hit 1.6564 during European morning trade, the pair's lowest since April 4; the pair subsequently consolidated at 1.6578 edging down 0.10%.
Cable was likely to find support at 1.6556, the low of April 4 and resistance at 1.6679, Wednesday\'s high.
Official data showed that U.K. retail sales rose 0.1% in July, disappointing expectations for an increase of 0.4%. Retail sales for June were revised to a 0.2% gain from a previously estimated 0.1% rise.
Year-on-year, U.K. retail sales rose 2.6% last month, confounding expectations for a 3.0% increase. For June, retail sales were revised to an annualized 3.4% gain from a previously estimated 3.6% advance.
Meanwhile, the dollar remained broadly supported after Wednesday’s minutes of the Fed’s July meeting showed that some officials believe the strengthening recovery and ongoing improvement in the labor market supports a move towards tightening monetary policy.
Other officials want to see further evidence of economic recovery before moving towards raising rates.
Investors were looking ahead to a speech by Fed Chair Janet Yellen in Jackson Hole on Friday for further indications on the possible future direction of monetary policy.
Sterling was lower against the euro, with EUR/GBP edging up 0.17% to 0.8003.
Data also showed that activity in the euro zone’s manufacturing sector slowed to a 13 month low in August, with the euro zone manufacturing purchasing managers' index down to 50.8 from 51.8 in July. Economists had forecast a decline to 51.3.
The region’s services PMI slid to 53.5 from 54.2 in July, in line with forecasts.
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Carney Seen Holding Sway as BOE Dissenters Stray From Pack
Mark Carney has come through his first public argument on interest rates with enough scope to contain dissent for now.
While policy makers Martin Weale and Ian McCafferty voted for an increase this month, the gulf between their thinking and that of the governor’s seven-strong majority suggests his view will hold sway, according to economists at banks including Goldman Sachs Group Inc. and UniCredit SpA.
Investors share that outlook, with expectations for the first rate increase staying stuck in May even after the revelation of the first split in more than three years. Even though Carney has given some mixed signals on the potential timing of tightening, his warnings about risks to the recovery signal an entrenched position in his camp.
Related: Carney Loses Rates Consensus as BOE Splits
“The two are on their own, and it’s now Carney who holds the key,” said Daniel Vernazza, an economist at UniCredit in London. “There are too many on the committee who are aligned to him for him to be outvoted.”
Minutes of the bank’s Aug. 6-7 meeting published yesterday showed Weale and McCafferty, both external members of the Monetary Policy Committee, voted to raise the key rate by 25 basis points from a record-low 0.5 percent. They said the drop in unemployment and signs of a tighter labor market signaled wages are set to pick up, and so “economic circumstances were sufficient to justify an immediate rise in bank rate.”
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GBP sell-off looks over-done, especially after BoE minutes
It just seems to be getting worse for GBP, which is flirting with four month lows versus USD. However the sell-off is starting to look over-done with the UK economy still in robust shape and with dissension building at the Bank of England over interest rates.
Two factors have removed support for GBP. One is the recent dovish tone by the Bank of England over monetary policy and secondly the hawkish tone contained in the minutes released by the US Federal Reserve suggesting a US interest rate rise could happen sooner than anticipated.
However, the same holds true for UK interest rates. In the BoE’s latest minutes two members voted for a 25 basis point rate rise reflecting signs of nervousness over future inflationary prospects.
By Justin Pugsley, Markets Analyst MahiFX. Follow @MahiFX on twitter
True UK inflation and wage rises are both low, but given the strength of the UK’s recovery (GDP growing at 3.2%), this could change quickly. Indeed, the rapid fall in unemployment is likely to soon see upward pressures on wages – something the two BoE dissenters appear to be anticipating.
Therefore, a modest 25bp rate rise – hardly enough to derail the strong recovery – could still happen by the end of the year. Also, anticipating inflationary pressure would make bigger interest rate rises less likely later on. The BoE has to be careful that by being too dovish it doesn’t end up having to raise interest rates quickly to catch-up with the economy and end up creating a bust.
US recovery makes gains against USD harder
The US Fed is set to wind down its quantitative easing programme in October. The Fed also appears a lot more optimistic about the US economy and seems keen to normalise monetary policy soon.
Certainly, the US economy seems to have rebounded in the last quarter, the pace of jobs creation is strong and at least one member of the Fed is pushing for tighter monetary policy.
Though that makes it tougher for GBP to recover lost ground against USD – the pace of the sell-off looks over-done. Indeed, there should be some form of consolidation on GBPUSD shortly and possibly a recovery later in the year back to around 1.6700-1.6800.
After all the UK has shown itself to be consistently more vulnerable to inflation than the US – suggesting the BoE may have to be more aggressive than the Fed. GBP has also lost some ground to the EUR, which also looks over-done given the Eurozone’s lack of economic growth and ongoing deflationary predicament.
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GBP/USD forecast for the week of August 25, 2014
The GBP/USD pair fell during the course of the week, continuing the bearish run that we have seen. That being the case, we feel that it’s only a matter of time before we touched the 1.65 level, an area where we expect to see significant buying pressure. A supportive candle in that area has us buying this pair, but if we break down below the 1.64 handle, things could get ugly is at that point in time we would anticipate seeing the market head to the 1.60 level.
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GBP/USD Forecast Aug. 25-29
The British pound had another rough week, losing about 150 points. The pair closed the week at 1.6563, its lowest level since early April. The upcoming week has a light schedule and there are no major events. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.
In the UK, the BOE minutes surprised the markets with the breakdown of the vote on the interest rate decision. The vote was 7-2 to maintain rates, with BOE board members Martin Weale and Ian McCafferty in favor of an immediate rise in the bank rate. This marks the first split vote on the interest rate level in over three years. The fact that there are Bank policymakers who favor a raise in rates could bolster the sagging pound. In the US, manufacturing and housing releases beat the estimates. There was a lot of hype leading up to Janet Yellen’s speech at Jackson Hole on Friday, but the Fed chair focused on the US employment picture and didn’t provide any clues about the timing of an interest rate.
* All times are GMT
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Bank of England not to hike key rates on weak UK wage growth
Bank of England (BoE) will not raise the interest rates till the prospects of stronger wage growth not emerge in the UK, bank’s deputy governor said on Saturday.
“Despite signs of skills shortage, the slow wage growth in the UK is unlikely to pick up any time soon and the picture remains murky further,” BoE deputy governor Ben Broadbent told bankers at an annual conference in Jackson Hole, Wyoming.
According to Broadbent, years of low productivity along with minimal wage hikes (since the 2008 financial slowdown) have most likely lowered wage demands of the British workers.
Last week, the BoE has cut down its forecast for wage growth by almost half this year to 1.25 percent.
The BoE expects a wage growth recovery to 3.25 percent in 2015. The figures are slightly lower than the pre-crisis average of 4.25 percent. Broadbent, however, called it uncertain.
Broadbent’s economic model says: “As people have become more adapted towards lower wage awards, it’s very much possible that the ‘norm’ of pay growth had gradually adjusted to a protracted period of low productivity growth.”
He also added that some data had suggested that wage hikes are likely to be coming any time soon.
Janet Yellen, Federal Reserve Chairperson, also echoed similar sentiments for economy growth, while putting more stress on the complex effects of the 2008 financial crunch on the US economy, government policymaking and American labour market.
Broadbent also stressed that both BoE and the Fed need to launch joint corrective measures to look at wage, unemployment and growth issue.
This would help the central banks to understand the changing global economies and plan corrective measures accordingly.
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GBP/USD almost unchanged, near 5-month lows
The pound was almost unchanged against the U.S. dollar on Friday, hovering close to five month lows as Friday's comments by Federal Reserve Chair Janet Yellen continued to support demand for the greenback.
GBP/USD was at 1.6578 during European morning trade, not far from the five month session low of 1.6538.
Cable was likely to find support at 1.6466 and resistance at 1.6597, Friday's high.
The dollar strengthened broadly after Fed Chair Janet Yellen said on Friday that the U.S. economy is recovering and added the labor market is improving as well.
Ms. Yellen was speaking at the Fed's annual meeting of top central bankers and economists in Jackson Hole, Wyoming.
Sterling was higher against the euro, with EUR/GBP retreating 0.41% to 0.7959.
Also Monday, the German research institute Ifo said its Business Climate Index fell to a more than one-year low of 106.3 this month, below forecasts for 107.0 and down from a reading of 108.0 in July.
The weak data dampened optimism over the health of the euro zone’s largest economy.
The single currency also came under pressure after European Central Bank President Mario Draghi told the Jackson Hole gathering on Friday that the central bank is ready to take more unconventional action if needed to stimulate a sluggish euro zone economy.
Later in the day, the U.S. was to release data on new home sales.
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GBP/USD almost unchanged, near 5-month lows
The pound was almost unchanged against the U.S. dollar on Tuesday, trading within close distance of five-month lows after weak U.K. mortgage data and amid ongoing concerns over tensions in Ukraine.
GBP/USD hit 1.6566 during European morning trade, the session low; the pair subsequently consolidated at 1.6576, dipping 0.02%.
Cable was likely to find support at 1.6546, Monday's low and a five-month low and resistance at 1.6602, the high of August 21.
Industry data showed that U.K. mortgage approvals rose by £42,800 last month, less than the expected increase of £44,200, after a revised £43,200 rise in June.
Markets were jittery as Russian President Vladimir Putin was set to meet his Ukrainian counterpart, Petro Poroshenko, later Tuesday amid growing tensions in the region.
On Monday, Ukraine said an armored column including 10 tanks entered from Russia as the government in Moscow unveiled plans to send a second convoy with humanitarian aid.
Meanwhile, demand for the greenback remained supported after Federal Reserve Chair Janet Yellen said at Jackson Hole on Friday that the U.S. economy is recovering and added the labor market is improving as well.
Sterling was steady against the euro, with EUR/GBP inching up 0.06% to 0.7962.
Later in the day, the U.S. was to publish reports on July durable goods orders, as well as house price inflation and consumer confidence.
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Pound Approaching a Five-Month Low Pares Rally Too Late for WPP
The pound trading about 0.5 percent from a five-month low versus the dollar comes too late for U.K. companies with large foreign sales that are blaming sterling’s earlier rally for reduced earnings. Today it was WPP Plc’s turn.
The U.K. currency yesterday slid to the least since March after posting its seventh consecutive weekly loss. The decline pared gains amassed in the past 12 months that made sterling the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. That’ll be of little comfort to WPP, the world’s largest advertising company, which said its first-half revenue had been damped by the pound’s broader rally.
This year “looks likely to be another demanding year, as a strong United Kingdom pound and weak faster-growth-market currencies continue to take their toll on our reported results,” London-based WPP said in a statement today.
The pound was little changed at $1.6573 at 4:28 p.m. London time after dropping as low as $1.6501 yesterday, the weakest since March 25. It slid for a seventh week in the five days through Aug. 22, the longest losing streak since September 2008. Sterling was also little changed, at 79.64 pence per euro.
Sterling has appreciated 7.4 percent in the past year, according to the Bloomberg indexes, on bets the Bank of England is moving closer to raising interest rates. The currency’s strength dented revenue at WPP by 8.6 percent, the company said. Revenue rose 2.7 percent from a year earlier to 5.47 billion pounds.
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GBP/USD rises to 1-week highs, U.S. data in focus
The pound rose to one-week highs against the U.S. dollar on Thursday, as risk sentiment mildly improved ahead of highly anticipated U.S. economic reports on second quarter growth and last week's jobless claims.
GBP/USD hit 1.6614 during European morning trade, the pair's highest since August 20; the pair subsequently consolidated at 1.6606, edging up 0.18%.
Cable was likely to find support at 1.6537, Wednesday's low and a five-month low and resistance at 1.6679, the high of August 20.
Investors were turning their attention to upcoming data on U.S. second quarter GDP and the weekly government report on initial jobless claims for further indications on the strength of the U.S. economic recovery.
Last week, Federal Reserve Chair Janet Yellen said at Jackson Hole that the U.S. economy is recovering and added the labor market is improving as well.
The pound was steady against the euro, with EUR/GBP easing 0.04% to 0.7957.
In the euro zone, data showed that the number of unemployed people in Germany rose by 2,000 last month, confounding expectations for a decline of 5,000. The change in the number of unemployed people for June was revised to a 11,000 drop from a previously estimated 12,000 decline.
Separately, preliminary data showed that consumer price inflation in Spain fell at an annualized rate of 0.5% this month, compared to expectations for a 0.2% downtick, after a 0.3% fall in July.
Meanwhile, expectations for fresh easing by the European Central Bank slightly eased after German Finance Minister Wolfgang Schauble said on Wednesday that ECB President Mario Draghi's recent comments on the matter have been "over-interpreted."
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