GBPUSD news - page 87
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Pound / Dollar Rate Breaks a Critical Resistance Area Forecasts Eye Target at 1.4515 Pivot
A strong supply of sterling above 1.4350 could keep the pound to dollar exchange rate strength contained, but there are reasons to expect further advances to be squeezed out of the market.
The British pound continues to trade above levels not seen since late March against the US dollar, the poor UK employment data released mid-week has not done enough damage to suggest a reversal in the short-term recovery is over.
Britain’s job market showed more fragility, keeping the door shut to a Bank of England rate rise, as paychecks grew at the slowest rate in a year, up 1.8 percent annually in February. Unemployment idled at 5.1 percent.
Sterling's reaction confirms the currency is detached from economic fundamentals at present and remains a play on risk sentiment. This is particularly true of the GBP/EUR, GBP/USD and GBP/JPY pairs - when European markets are rising, so sterling rises against these G5’s.
(In fact, over recent days sterling has risen even without stock markets!)
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GBP/USD: Sterling Stays Below $1.46 After GDP Figures According to the Office for National Statistics, the UK's GDP for the first quarter printed 0.4% quarter-on-quarter and slowed from the 0.6% booked in the last quarter of 2015. Moreover, the yearly change stayed at 2.1%.
UK economic growth matched the slowest pace in more than three years as the country braces for an in-out referendum on its membership in the world’s largest trading bloc and as a slowdown in China, weakness in commodity prices and financial market volatility dragged down global economic expansion.
Sterling hardly moved after the numbers and the GBP/USD pair kept trading near daily lows around $1.4570.
In addition, Brexit risks have eased a bit over the previous days as of the 13 opinion polls published so far in April, eight have shown support for the 'Remain' camp, while just three polls showed the public leaning towards a Brexit. The other two polls showed an even split.
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GBP/USD: Cable Tests $1.46 on US Dollar Weakness The GBP/USD pair was trading stronger on Thursday and was testing the $1.46 handle during the London session, booking gains of 0.40%.
The most anticipated event of this week was yesterday's Federal Open Market Committee meeting, which saw the central bank leave the fed funds unchanged at 0.5% while the following statement did not bring any surprises.
Moreover, it looks like the Federal Reserve (Fed) might raise rates at the June meeting, but the economic data need to improve further. However, it was not viewed positively by the US dollar as it was trading broadly lower on Thursday.
"The reference to domestic economic activity was downgraded with economic activity appearing to 'have slowed' while growth in household spending had 'moderated'. But the key highlight was the indication of reduced fears over the past volatility in financial markets with the statement not including the March comment that “global economic and financial developments continue to pose risks," analysts at Bank of Tokyo-Mitsubishi said on Thursday.
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EUR/USD forecast for the week of May 2, 2016 The EUR/USD pair broke higher during the course of the week, clearing the top of the shooting star from the previous week. This is a market that has a lot of resistance of the 1.15 level, and as a result if we can get above there, the market should continue to go much higher. As far selling is concerned, we don’t have any idea of selling at this point in time because the buying pressure continues to be strong. We are bullish, but we have to wait until we get a break above the 1.15 handle.
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Brexit wouldn't be such a bad thing for London's financial markets
Why 110 bosses are backing Leave campaign in the EU referendum 30 April
There's been plenty of headlines here, and elsewhere, for reasons for the UK to Remain in the EU so here's one that goes a small way to redress the balance. Ok, so it's focussed more on the City than the UK economy as a whole but given that our services sector contributes round 80% to GDP it's not be undervalued.
A letter published in the London Evening Standard yesterday shows that more than 100 business leaders have thrown their weight behind the campaign to leave the EU, arguing the City would "thrive and grow" outside the EU.
Ex-HSBC boss Michael Geoghegan, former Channel 4 chairman Luke Johnson and the stockbroker Peter Hargreaves are among those backing a Leave vote on 23 June arguing that excessive regulation poses a threat to London's pre-eminence in the global financial services industry. They go on to say that Brussels meddling represents "a genuine threat" to Britain's financial services industry.
"We believe the City is most likely to strengthen its lead as the world's largest international financial centre, and continue to make a major contribution to the UK economy and employment, outside the EU but with continued access to its capital markets."
There is scant evidence that the EU will foster or support the kind of innovation which is essential if Europeans are to compete with the rest of the world.
"Specifically, we worry that the EU's approach to regulation now poses a genuine threat to our financial services industry and to the competitiveness of the City of London."
For the record I remain in the Undecided camp and will continue to seek convincing evidence as to where place my Vote on 23 June.
Full Evening Standard article here, and the BBC attempts to produce a "Brexit issues made simple" analysis here.
GBP/USD: Sterling Rises to 4-Mth Highs
The pound pushed higher on Monday, mainly due to the global US dollar weakness and the GBP/USD pair was spotted trading at $1.4690, 0.6% stronger on the day.
The Brexit risk has diminished during the previous days, which provided support for sterling and it rose around 10 big figures from February lows above $1.38.
"The discussion over the UK referendum continues to dominate conversation despite reduced 'Brexit' fears on the financial markets. Following US President Obama's clear support for the UK to remain part of the EU, the probability of an exit has decreased meaningfully as reflected in certain polls," Peter Rosenstreich, chief FX analyst at Swissquote bank said on Monday.
Moreover, this week will bring all three PMIs from the United Kingdom and they might set direction for the pound.
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If No Brexit, The Pound Is Still Cheap
The recent better performance for the UK pound has mirrored a shift in the opinion polls on the EU referendum, notes ANZ.
"The average of the last seven opinion polls has shown a rise in support in favour of remaining in the EU to +7 points vs +1 in the first half of the month.
In reflection of that, the pound has recouped some lost ground as Brexit anxiety has faded. However, there are still a large number of undecided voters (approximately 20%) and just over 50 days to go until the referendum (23 June), so it would be naive to assume that sentiment can’t and won’t twist and turn, and sterling appears responsive to that," ANZ adds.
"If one is of the persuasion that the UK will stay in the EU, there is little doubt that the pound is cheap. We have highlighted the size of the UK’s c/a deficit (5.2% of GDP) as a headwind. But the deterioration in the c/a deficit owes much to weakness in mining companies’ earnings. The underlying trade position in goods and services has fared considerably better.
Using producer prices, GBP is estimated to be some 16% undervalued vs USD. The 5,10 and 20-yr averages for GBP/USD are 1.57, 1.66, and 1.64 respectively.
If the opinion polls are correct and some of the weakness in Q1 activity is a function of Brexit, then over the medium term, sterling should appreciate. It would be natural for the pound to reflect less political risk, the data could bounce back, and interest rate expectations could reprice," ANZ argues.
GBP/USD: Sterling Defends $1.45, Awaits Services PMI
Sterling was trying to recuperate from the latest sell-off and was trading somewhat stronger on Thursday, but more importantly, it managed to jump back above the psychological level of $1.45. The GBP/USD pair was trading near daily highs during the Frankfurt session, spotted around $1.4520.
Looking ahead, the services PMI for April is expected to decline marginally from 53.7 to 53.5.
In the previous sessions, the UK construction PMI slowed notably in April from 54.2 to 52.0 and the UK manufacturing PMI slowed notably to 49.2 in April, down from 51.0 booked in March. The PMI dropped into contraction territory after more than two years in expansion.
"The UK gets its turn today, with the latest services PMI data from the UK economy which despite a fairly decent Q1 appears to have hit a bit of a pothole in April. Given how important the services sector is to the UK economy we really need to see a decent number here or run the risk that we see a growth downgrade next week from the latest Bank of England inflation report," Michael Hewson, chief market analyst at CMC Markets UK, said on Thursday.
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UK Economic Slowdown May Be Only Temporary as Price Pressures Rise
The trio of notably weak Markit/CIPS Purchasing Managers' Indices (PMI) published this week indicate UK gross domestic product slowed to as low as 0.1% at the start of the second quarter, as all three main segments of the output side of GDP decelerated to their three-year low.
The feedback from the main sectors - manufacturing, services and construction - revealed the upcoming June 23 EU referendum was among the primary reasons behind this current slowdown, as the increased level of business uncertainty "led some clients to delay spending", Markit said.
The PMI surveys measure immediate sentiment among companies' purchasing managers, and not expectations or future intentions, so it is hard at the moment to see how lasting this marked slowdown could be.
But the fact that a majority of credible forecasters and global economics organizations attribute most of the current uncertainty and deceleration to the EU referendum, which many view as one of the most significant post-war political and economic events - we might expect the UK economy to return to its average quarterly pace of around 0.5% in the second half of this year, if the UK stays in the EU and all else stays equal.
The economics team at Berenberg's London branch argued in a note on May 5 that there was "no need to panic" after gloomy PMIs, as the underlying growth prospects remain stable, and strong enough to keep the momentum into the second half of the year.
"... Monthly data can be volatile and soft data is often influenced by sentiment as much as the underlying economic performance," Berenberg analysts argued.
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GBP: Brexit Risk Vs Growth Outlook: Where To Target?
After being sold for most of the year on the back of rising fears over the UK exiting the European Union, the GBP has stabilised of late, mainly due to the past few weeks’ polls suggesting less probability of a Brexit materialising. In fact, that outcome remains our house view and our main argument for expecting the GBP to continue trending higher over the coming few quarters.
It must be noted too that after the EU referendum investors’ focus is likely to shift back to fundamentals as a driver of rate expectations and the currency. With domestic conditions constructive and as medium-term inflation expectations – as measured by 5Y forward breakeven rates – have been well supported close to 3%, there is room for rising monetary policy expectations.
As such, we expect GBP/USD to end the year closer to 1.51 and 2017 at 1.55. The higher forecast profile is also based on a slight downgrade of the USD. EUR/GBP should end this year closer to 0.74 and next year 0.72.
In both cases it will be due to diverging monetary policy expectations. It must be remembered that the continuing global growth uncertainty is likely to prevent the currency from appreciating more considerably.
Ahead of the 23 June referendum, some downside risks related to next month’s inflation report or renewed fears over a Brexit cannot be ruled out. We believe such corrections should prove a buy.
CACIB targets GBP/USD at 1.44, 1.49, and 1.51 by the end of Q2, Q3, and Q4 respectively.
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