GBPUSD news - page 49
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GBP/USD: Sterling Gallops Toward 5-Mth Highs After Splendid Data
The UK pound hit its highest level since December 2014 versus the US dollar on Tuesday, after manufacturing and industrial production beat estimates in March.
Sterling edged up 0.63% to $1.5682 versus the greenback before noon in London on Tuesday in reaction to the latest industrial and manufacturing production data for March,which came out above expectations, with the first data set rising from 0.1% to 0.5%, while the latter eased to 0.4% from 0.5%, both on a monthly basis.
The pair reached the highest level in four months in the previous session, when the pound ticked above the $1.56 threshold, which the cable tested on Tuesday again.
The market will now be looking toward the Bank of England (BoE) Quarterly Inflation Report, which will include an updated outlook for inflation, growth and the labor market, and accompanying comments by BoE Governor Mark Carney. The release is likely going to point to the diminishing threat of deflation in the UK from the third quarter this year onward.
"The market has slightly nudged higher its expectation for future BoE activity. It now fully prices a 25bps hike by mid next year," Kymberly Martin from BNZ Markets wrote in a note on Tuesday.
February projections, based on market interest rate expectations, showed CPI inflation picking up to 1.2% in the first quarter of 2016, before crawling slowly up to hit the 2% target at the start of 2017.
Moreover, Wednesday will bring labor data, with the jobless rate estimated to have dropped further to 5.5% in the quarter to March, while earnings excluding bonuses are expected to have picked up to 2.1%, up from 1.8% a month before.
The Bank of England left its policy unaltered on Monday. There were no surprises as the Bank left the cash rate at 0.50% with no accompanying statement.
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GBP/USD: Sterling Hovers Near 2015 Highs Ahead of Busy UK Session
The UK pound remained traded near it's highest level in 2015 on Wednesday, although in a rather narrow range, with last week’s surprise election result and improving economic data creating a bit of a tail wind behind sterling. Traders expect a busy session today with the Bank of England (BoE) Inflation Report and the UK unemployment rate in primary focus.
Ahead of the European open, sterling traded at $1.5679 against the US dollar, up 0.8% on the day.
The latest ILO unemployment rate for Marchcould boost sentiment further, if as expected it shows a further fall to 5.5% from 5.6%. Average earnings excluding bonuses for March are expected to jump to 2.1% from 1.8%.
Today’sBoE Inflation Reportcould well see Governor Mark Carneyupgrade the central banks growth and inflation forecasts for the UK economy over the next 12 months, as well as giving him much more free reign to be candid about the health of the UK economy, without any political constraints.
"Despite the banks so called independence, a lead up to an election is always a tricky time for central bankers lest they be accused of political interference by politicians, who might not want voters to hear a particular message. Watch out in particular for warnings about the recent strength of the pound as it nears its highest levels in nearly a month against a basket of currencies," Michael Hewson from CMC Markets wrote in a research note on Wednesday.
The recent rally in sterling has also been largely supported by the recent weakness in the US dollar. The expectations of a US rate rise pushed back into the end of this year on the back of softer US data, which weighed on the greenback.
"There has been particular weakness on the consumer side of the US economy over the last six months, despite the falls in oil prices easing the strains on household budgets," Hewson added.
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BOE Cuts Growth Forecast, Sees Inflation at Goal in Two Years
The Bank of England cut its growth forecasts through 2017 and endorsed investors’ view for gradual interest-rate increases that may not start until the middle of next year.
In its quarterly Inflation Report, the BOE said that, based on the benchmark interest rate rising in line with the path implied by market yields, U.K. inflation will return to its 2 percent target within two years. It sees the economy expanding 2.5 percent this year, down from 2.9 percent in February.
With inflation at zero, the report was accompanied by a letter from Governor Mark Carney explaining the deviation from the BOE’s goal. While Carney said the inflation rate may dip below zero in the coming months, there will be a pickup at the end of the year, and the Monetary Policy Committee “judges it more likely than not that bank rate will increase from its current level over the forecast period.” The BOE rate has been at a record-low 0.5 percent since March 2009 and markets have priced in increases to start mid-2016.
The report from the central bank is the first since Prime Minister David Cameron clinched a surprise majority victory in the May 7 general election. It also follows an official estimate of gross domestic product that showed growth unexpectedly slowed to 0.3 percent in the first quarter.
The BOE expects GDP growth in January-March to be revised up to 0.5 percent and sees expansion of 0.7 percent this quarter. It lowered its 2016 projection to 2.6 percent from 2.9 percent and its 2017 outlook to 2.4 percent from 2.7 percent, though it said the outlook remains “solid.” The forecasts are based on the BOE rate rising to 1.4 percent by the second quarter of 2018.
Inflation Outlook
On inflation, it raised its 2015 forecast to 0.6 percent from 0.5 percent and cut the 2016 forecast to 1.6 percent from 1.8 percent. At the two and three-year policy horizons, it sees consumer-price growth at 2 percent and 2.1 percent respectively.
The BOE said there is “little sign” of the U.K. slipping into deflation, though it is ready to cut the benchmark rate or restart asset purchases if needed.
The central bank said there are “downside risks” to its near-term inflation forecasts. It also cited surveys of companies and employees showing they expect “little recovery in pay growth this year.” Data earlier on Wednesday showed annual pay growth of 1.9 percent in the first quarter. With inflation so low, Carney said real disposable incomes will rise the most since 2007 this year.
Developments in the labor market are a key dividing point on the MPC, with some warning of potential pressures that may warrant early policy tightening. The BOE noted the differences, saying there is “considerable uncertainty” and a “wide range of views” around estimates of slack in the economy. The MPC’s central view has narrowed to about 0.5 percent of output.
In the letter to Osborne, Carney said the weakness in U.K. inflation is being driven by external factors, particularly the sharp drop in oil prices. The governor is required to write such a letter when inflation strays more than a percentage point from 2 percent.
“In the absence of further shocks, to return inflation to the target, it is necessary to eliminate the remaining degree of economic slack,” the governor said. Officials will return inflation to the target “as quickly as possible” after the impact of commodity-price drops fades.
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GBP/USD: Pair Whipsawed by Carney & Co, US Data
Sterling's break of the $1.57 barrier to fresh five-month highs on Wednesday was not without complications.
"GBP/USD was initially higher thanks to the UK experiencing better than expected wage growth in April, then lower after a dovish Bank of England only to move higher again tracking the dollar weakness," CMC Markets analysts Jasper Lawler wrote in his later morning note.
Lately, sterling has traded with a gain of 0.50% at $1.5744, stabilizing just below the $1.5750 marker, after briefly climbing to $1.5769, a level not seen since December 16.
The pair had already poked its head above $1.57 on Tuesday after some strong UK industrial data but it took the fresh jobs numbers to make a more pronounced push north of the threshold.
Less growth, more inflation
Then the Bank of England (BoE) released fresh quarterly macro-forecasts, also known as the inflation report, which were skewed to the dovish side.
Officials did expect prices pressures to pick up later this year as the effects of lower oil prices and a stronger currency disintegrate, but they also said the economy would grow slower than previous believed - GDP should grow 2.5% this year rather than 2.9%.
Furthermore, Governor Mark Carney seemed wary of the renewed strength of sterling, which made sharp gains against the US dollar in particular in the wake of last week's general election.
An interest rate hike in 2015 looks "highly unlikely", Howard Archer, chief economist at IHS Global Insight said, pointing out that the projections indicate rates may not start edging up until the second quarter of 2016 and afterward will only rise "extremely gradually" at least through to mid-2018.
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3 Reasons To Stay Long GBP – Deutsche Bank
The pound has certainly had its share of action, with significant intra-day drops and rises. What’s next for sterling?
The team at Deutsche Bank lists 3 reasons to remain long:
Here is their view :
In a special note today, Deutsche Bank advises clients to stay long GBP, arguing that there is still value in buying sterling, particularly against the euro. DB outlines 3 main reasons behind this call.
First, the recent pause in trends has allowed GBP to move back into line with medium-term valuation metrics.
“EUR/GBP now looks slightly expensive relative to real rate differentials,” DB argues.
Second, the market remains short pounds.
“CFTC data as of last Tuesday continues to show short GBP positions even as dollar positioning has lightened up or reversed against other currencies (NZD and CHF in particular). The TFF report shows asset managers have barely pared a very large short,” DB clarifies.
Third, cyclical drivers remain supportive.
“Underlying wage growth has continued to be robust and surveys report higher pay settlements offsetting falls in input costs for companies,” DB adds.
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GBP/USD: Sterling Benefits From Lower Dollar
The UK's pound was seen flat on Friday, remaining near the highest level since end of November 2014. Weak US macro data is causing a major drag on the dollar, sending the US dollar index to 3-month lows.
"Up until fairly recently all the talk had been of when the US Federal Reserve would look to start raising rates, against a backdrop of an improving economy, but recent economic data has slowly eaten away at that expectation with the result that now the talk is more about if they can raise rates," Michael Hewson from CMC Markets UK wrote on Friday.
The cable currency pair had pushed above $1.58 late last evening, but has slipped back below the $1.58 area ahead of the opening bell on Friday. The peak of $1.5815 is the highest since November 27.
The US dollar index remains under pressure, hovering near its three month lows at 93.47, due to a continuing set of weak US macro data. The USD declined from its 11-year high seen last month against a basket of currencies.
"Obviously the dollar index had come a long way in a short time, rising from 79.8 to 100.3 between June 2014 and March. That left a lot of room for retracement, and this month we have seen it slip all the way back to 93.4, a level last held in January," Rabobank wrote on Friday.
Yesterday's PPI figures came way below the expectations, declining 0.4% on the month and 1.3% on the year.A soft US PPI number appears to be largely due to a 4.7% m/m decline in gasoline prices in the month rather than representing a more broad deflationary threat.
"Yesterday’s US economic data gave no new clues as to the timing of that (FOMC) decision, after core PPI prices for March showed an unexpectedly sharp decline. Coming as it did on the back of another weak retail sales number on Wednesday, the data has once again prompted further downward revisions to US GDP forecasts," Hewson added.
Hence, US data remains in focus later today as well, with figures released for industrial production in April and the manufacturing activity index for New York in May, with respective consensus of 0.0% over the months and a reading of 5.0. The risks would look to the downside, given the lagged impact of the strong USD on exports and the downturn in the shale industry.
Moreover, more important given the surprising sluggishness in US retail sales this week will be Michigan's consumer confidence index for May, which is expected to remain unchanged at a strong 95.9.
Pound’s Post-Election Rally Is Seen Challenged Into Second Week
The pound’s world-beating performance this week following the U.K. election is prompting strategists to question whether the currency has room to appreciate.
After Britain’s May 7 election unexpectedly produced a comfortable win for the Conservative Party, sterling rallied 3.7 percent by May 13 to its highest level this year versus the dollar. Then it pared gains as investors’ attention shifted back to the mixed prospects of the U.K. economy.
In their sights are the Bank of England’s minutes from its latest policy meeting, at which officials kept interest rates at a record-low 0.5 percent. They’ll be published on May 20. With inflation at zero, increases in borrowing costs that may support the pound aren’t being priced in for a year.
Nonetheless, there are still signs of economic growth. Retail sales rebounded in April, climbing 0.4 percent, following a 0.5 drop in March, according to the median estimate of economists in a Bloomberg survey.
“We’ve had quite a reaction off the back of the election and, at least in terms of cable, we’ve had an overextension,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, referring to the pound versus the dollar. The currency pair “is settling into a more neutral zone. If you’re looking for sterling upside it could be interesting on euro-sterling.”
Best Performer
The pound gained 2 percent in the week to $1.5771 at 5 p.m. London time Friday. It reached $1.5815 the previous day, the highest level since Nov 27. Sterling was little changed at 72.48 pence per euro compared with May 8, after the previous week’s gain. The pound was the best performer since May 7 of the world’s 17 major currencies.
The U.K. currency still has room to fall back to $1.55 as markets feel out a new range, Hardy said.
Britain’s inflation rate will remain at zero in April, economists forecast in a Bloomberg survey before the data are released on May 19. The BOE said this week that consumer-price growth would return to its 2 percent target in two years based on market expectations for the central bank to gradually raise interest rates from mid-2016.
There is a strong case for foreign-exchange reserve managers to diversify into the pound now that the political uncertainty has passed as it’s still a relatively high-yielding currency, according to Citigroup Inc. HSBC Holdings Plc takes a different view, saying the governing Conservative Party’s pledge to hold a referendum on Britain’s membership in the European Union creates medium-term risk and so the pound will not sustain gains above $1.55.
U.K. government bonds declined for a fifth consecutive week amid a global selloff in debt, spurred by investors revolting against record-low and negative interest rates in Europe.
The 10-year yield was little changed in the week at 1.88 percent. The price of the 5 percent bond due in March 2025 was 127.815 percent of face value.
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GBP: The Calm After The Storm; How To Position? – BNPP
The pound has certainly moved higher, continuing its post-election rally, despite mixed events.
Could it be entering a period of calm? The team at BNP Paribas explains:
Here is their view :
With the outcome of the UK election much ‘cleaner’ than expected, BNP Paribas believes a return to fundamentals warrants a more positive view on Sterling.
“While previously we expected political risk premium on the GBP to persist after the election, we have now adjusted our forecast for EURGBP and expect the cross to reach its cyclical trough of 0.68 in Q4 2015 rather than 2016,” BNPP projects.
“This is consistent with the estimates of our CLEER model which incorporates our economists’ forecast for the first BoE rate hike in Q1 2016 and puts EURGBP forward-looking fair value at 0.69,” BNPP adds.
“Tactically, we do not believe current EURGBP levels are very attractive for establishing shorts and prefer to wait for the cross to rebound to the 0.74-75 resistance area before considering a sell recommendation,” BNPP advises.
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GBP/USD: Cable Drops Below $1.57 on Dollar Recovery
Cable was trading somewhat lower at $1.5670 during the London session on Monday, amid profit taking from dollar shorts and Friday's global dollar sell-off.
The greenback dropped sharply on Friday after theUniversity of Michigan's Consumer Confidence Index fell to 88.6, missing the expected 95.9. Worsening figures from the US economy might hint at the delaying of rate hikes by the Federal Reserve, which is pressuring the greenback.
Investors await CPI figures from the UK economy on Tuesday, with inflation expected to stay at 0.0%, while core CPI should remain at 1.0%.
As there are no major economic news on the agenda today, trading should be calm and volatility only mild, with investors waiting for Wednesday's FOMC minutes.
"On Tuesday annual U.K. CPI inflation is likely to have remained close to zero in April. The Bank of England forecasts the inflation rate will stay near zero in the coming months and may turn temporarily negative. The supermarket price war appears to have continued in April, according to a price index that tracks the price of more than 70,000 groceries. Sterling’s strength may exert further downward price pressures ahead, with trade- weighted sterling close to a seven-year high. The impact of lower oil prices will still be filtering through the production chain, even though oil has crept higher since January’s low. A better measure of domestically generated inflation is the growth of services prices, which has remained stable," analysts at Market Securities wrote in a research note on Monday.
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UK Preview: One-Off CPI Distortions Should Not Lead to Deflation Spiral
How likely is it that the annual rate of UK CPI fell into deflation in April? The general view ahead of Tuesday's release of April inflation data suggests the rate remained unchanged at zero in April, which would be unchanged from both February and March. The core CPI, a less volatile gauge stripped of energy and food prices, is expected to have stayed at 1%.
Despite expectations of no change, CPI may have slipped further down in April due to several one-off distortions in annual price changes, and the after-effects from oil price falls seen earlier this year.
In April last year, CPI inflation rose to 1.8%, when the largest upward effect came primarily from increases in transport costs, notably air fares, sea fares and motor fuels. At that time, the ONS said this was mainly due to the timing of Easter in April 2014, "with the Easter weekend [of April 19-20] falling within the April collection period for these services."
Therefore, as Easter came this year at the beginning of April, and the CPI data are collected in the middle of each month, we could expect a notable downward distortion to the overall index change this year in April. Significantly cheaper crude adds to this distortion. Even though Brent rose 5.9% in sterling terms between March and April this year, it fell sharply by as much as 31.8% over the year to April this year.
Even though the crude oil prices have been rising steadily since January this year, economists expect the after-effects of cheaper imports and oil translating to the wider economy to peak in April.
The Bank of England's (BoE) monetary policymaker Martin Weale said in his latest speech that the MPC expected the CPI to hit bottom in March or April: "Some of the effects of oil price falls take time to work through the system. Many businesses use oil products in different ways. Other companies buy from these businesses, and so lower oil prices work gradually through the supply chain. That is why we expect the biggest impact to come in March or April, even though oil prices have not fallen further since the start of January; indeed they have risen somewhat," Weale said.
The question is whether March was the month when the CPI hit bottom, or if we can expect a further dip in April. We should also note here that the official figures did show a technical deflation in March, when based on a rate rounded to two decimal places (-0.01%). In his letter to the Chancellor published last week, BoE Governor Mark Carney wrote that the Monetary Policy Committee (MPC) still thought it likely that CPI will turn negative over the next few months.
The overall CPI measure remains muted also due to aggressive discounting in the UK supermarkets, although shop price deflation, as measured by the British Retail Consortium (BRC), eased in April to 1.9%, from 2.1% a month before. "Shoppers are still seeing lower prices than this time last year and food prices have fallen for four consecutive months, with the supermarket price wars expected to continue," Mike Watkins, head of retailer and business insight at Nielsen, commented on the April BRC price report.
The BoE sees the CPI hitting the target of 2% in the second quarter of 2017, when based on market interest rates expectations. When the CPI projections are based on an interest rate constant at 0.5%, the MPC sees consumer price inflation rising to 1.5% at the start of next year, and then moving up sharply to 1.9% in the final quarter of 2016, the May Inflation Report forecasts showed.
During the Inflation Report press conference last week, Governor Carney stressed that sterling appreciation and its downward after-effect on import prices was set to continue distorting CPI inflation markedly in future.
When questioned by WBP Online on those sterling moves and their impact, Carney said: "Relative to the February Inflation Report until the close of business yesterday, we've seen a 4% increase in the effective exchange rate of sterling … We'll have to try to determine what's happening with past pass-through but we have some future pass-through if these types of moves persist, which we’ll have to address."
Despite this sharp fall in short-term CPI, inflation is likely to start rising notably towards the end of the year when the effect of cheap oil and sterling appreciation (since the trough in March 2013) starts to dissipate. When asked about deflation threat last week, Carney said medium-term inflation expectations suggest "the British people are looking through this temporary low inflation."
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