Is the Pound Under Pressure?
The GBP/USD currency pair is affected by a myriad of factors on both sides of the Atlantic. In the US, the release of economic data helps to prop up the beleaguered greenback which has been struggling in recent weeks. US personal consumption expenditure rose by 0.4% month on month in December 2017, with upward revisions for November at 0.8%. This was boosted in large part by expenditure on utilities and automobiles. On the flipside, savings declined to 2.4%, marking the lowest level in over 12 years. The current US economic indicators reflect the following:
- Debt/GDP ratio of 106%
- Interest Rate of 1.5%
- Inflation Rate of 2.1%
- Unemployment Rate of 4.1%
- GDP Growth Rate of 2.6%
- NFP data 146,000 for December 2017
- Business Confidence 59.7
An important measure of the performance of the USD is the DXY. The US Dollar Index is currently hovering marginally above its 52-week low of 88.44. Now at 89.40 (+0.39%), the USD has made notable gains against a basket of currencies, including the GBP, CAD, CHF, EUR, JPY and SEK. The US dollar index is a broad measure of the strength of the US dollar. For the year to date, the index is down 2.95%. The mini-resurgence is evident in the current exchange rates of the USD in various Forex pairs. For example:
- EUR/GBP down 0.0051 or 0.41% at 1.23740
- GBP/USD down 0.0085 or 0.60% at 1.40630
- AUD/USD down 0.00215 or 0.26% at 0.80925
- NZD/USD down 0.00419 or 0.56% at 0.73117
- USD/JPY up 0.45 or 0.42% at 109.08
- USD/CAD up 0.00217 or 0.18% at 1.23305
The strength of the greenback is evident across the board in all currency pairs. A weakening of sterling is indicated on the FTSE 100 index which typically moves in the opposite direction to currency strength or weakness. The FTSE 100 was trading at 7,671.53, up 0.08%, or 5.99 points – no thanks to sterling, but thanks to a resurgence in performance by mining stocks. The major mining companies led by Anglo American, BHP Billiton, Rio Tinto, Glencore and Randgold powered the surge.
Across the Atlantic, GBP Remains on the Back Foot
The performance of sterling is less attributed to domestic UK economic indicators than it is USD strength. As one of the premier G20 countries, the UK boasts an impressive set of economic indicators including the following:
- Debt/GDP ratio of 89.3%
- Interest Rate of 0.5%
- Inflation Rate of 3%
- Unemployment Rate of 4.3%
- GDP growth rate of 0.5%
- Employment Rate of 75.3% with 78.8% LFPR
- Business Confidence of 13 points, with Manufacturing PMI of 56.3, and Services PMI of 54.2
The upcoming UK economic indicators will also have a bearing on the performance of GBP. Heading into February 2018, there are several important decisions that all sway speculative sentiment. These include the following:
- Friday, 2 February 2018 – Construction PMI for January with a previous reading of 52.2
- Thursday, 8 February 2018 – the Bank of England interest rate decision with a previous reading of 0.5%, and the Bank of England quantitative easing decision with a previous amount of £435 billion
- Friday, 9 February 2018 – Balance of trade figures for December will be released with a previous reading of £-2.804 billion
If UK economic indicators exceed expectations, or perhaps even meet them, this could be good news for the GBP/USD pair. Any time economic indicators miss the mark, this reflects in a somewhat weaker sterling.
Do you feel that the UK economy is sufficiently strong to withstand the mini-rally that we are seeing with the USD? Is the Brexit saga going to come back to bite UK speculators and investors this year? Share your thoughts on how you are structuring your investment portfolio for the year.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.