GBP to USD Exchange Rate Holds Ground in Anticipation of Bank of England (BoE) Speculation

January 24, 2020 – Written by Ben Hughes

Despite US data continuing to be decent and a lack of fresh support for the Pound yesterday, the British Pound to US Dollar (GBP/USD) exchange rate was able to continue to hold its ground for most of the past day. The Pound could still see some sharp movements before markets close for the week depending on upcoming UK PMI results, while this afternoon’s upcoming US PMI data could also cause some US Dollar movement.

Since opening this week at the level of 1.3015, GBP/USD has spent most of the week trending with an upside bias. In the middle of the week, GBP/USD saw jumps in demand as UK data beat forecasts.

GBP/USD gained over a cent throughout the week so far. While GBP/USD has been unable to hold the fortnight high of 1.3147 seen yesterday, the pair continues to trend relatively high in the region of 1.3138 at the time of writing. However, the pair could quickly shed some gains depending on today’s upcoming UK and US data and how they influence central bank speculation.

Pound (GBP) Exchange Rates Awaiting Bank of England (BoE) Speculation

Following weeks of mixed performance in Sterling, this week has been highly bullish for the British currency.

In the first half of the week, solid UK data was published that boosted market hopes of a 2020 rebound in Britain’s economic performance.

It was enough to cause bets of a January interest rate cut from the Bank of England (BoE) to fade. BoE rate cut bets had been rising on poor 2019 data, but hopes are rising that Britain’s economic performance is improving already this year.

With much of this week’s data beating forecasts, even analysts warning of a BoE rate cut at some point this year are speculating that it could be done with the expectation of an economic rebound.

Overall, investors became more optimistic on Britain’s economic outlook this week.

While Brexit and Bank of England uncertainties persist, investors are awaiting upcoming UK data and next week’s BoE policy decision before making further big movements on the Pound.

According to Lee Hardman, Currency Strategist at MUFG:

‘We have had some decent data this week that has pointed to a pick-up in economic sentiment, and that is helping the Pound,’

US Dollar (USD) Exchange Rates Benefitting from Weakness in Rivals and US Data

This week’s US data has been generally decent and has helped the US Dollar to hold its ground in recent sessions.

US housing data has been strong, and yesterday’s US Kansas Fed manufacturing index was also a little better than expected at -4.

These figures have helped to soften Federal Reserve interest rate cut speculation which is supporting the US Dollar.

However, the US Dollar is also being supported by weakness in rival currencies, as well as market uncertainties keeping investors from buying assets correlated to risk.

The European Central Bank (ECB) was a little more dovish than some investors hoped in yesterday’s policy decision. This left the Euro (EUR) weaker, and as the Euro is the US Dollar’s biggest rival it also helped the US Dollar to hold its ground.

Amid market concerns about a coronavirus spreading from China, safe haven currencies like the US Dollar continue to see broad global support.

GBP/USD Exchange Rate Forecast: PMI Reactions to Drive Movement until Next Week

Reaction to Britain’s January PMI projections from Markit have the potential to cause notable Pound movement for the remainder of the day, depending on the impact they have on UK economic expectations and Bank of England (BoE) interest rate speculation.

Similarly, this afternoon’s US PMI projections from Markit could give investors a better idea of how the US economy is performing this month.

However, as Markit’s US PMIs are not as influential as ISM’s, the US Dollar may continue to be driven more by global sentiment as investors await more influential news next week.

Next week will of course be of course be a highly influential one for both the Pound and US Dollar, with both the Bank of England (BoE) and Federal Reserve holding January policy decisions throughout the week.

The Federal Reserve’s decision will take place on Wednesday. If the Fed is more cautious about the US economic outlook than expected, the US Dollar could see weaker performance.

Bank of England news could be especially influential if the bank takes a surprising shift in tone in relation to Britain’s economic outlook. If the bank plays down the strength of recent UK ecostats, the Pound to US Dollar exchange rate could slump.

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TAGS: Pound Dollar Forecasts