Pound / Dollar Rate Reverses Gains as Fischer, Yellen Prompt Odds for September Fed Rate Hike to 38%

GBP/USD fell as Janet Yellen confirmed an interest rate rise at the Federal Reserve in 2016 is likely.

The Pound ended the week higher against the US Dollar than where it started the week.

This is the second consecutive weekly rise in GBP/USD and confirms a base in the pair is forming.

The exchange rate started the week at 1.1537 and closed at 1.1738.

The pair would have ended with a greater gain were it not for the market's verdict on Fed Chair Yellen's opening remarks delivered to the Jackson Hole Symposium.

Yellen told delegates that, "In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."

The USD rose, then fell confirming market interpretations on what had been said was divided.

Step in Deputy Chair Fischer later who, in answer to the question of whether we should expect a September interest rate rise, said, "I think what the Chair said today was consistent with answering yes to both of your questions”.

The probability of a 21 Sep FOMC rate hike hit 38%, its highest levels since early June and the USD moved higher against its major competitors.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3334▲ + 0.06% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2881 - 1.2934
**Independent Specialist	1.3148 - 1.3201 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

GBP/USD Enjoys a Technical Bounce Which Could Soon End

The British Pound enjoyed a strong week.

The bounce is largely technical in nature it would seem with a market correcting from heavily oversold conditions.

We suspect though that the recent rally in Sterling will invite traders to reload on fresh negative bets having observed improved levels from which to do so.

"The Sterling short-covering bounce ought to be nearing completion and short GBP/USD is a
good place to start," says Kit Juckes at Societe Generale, offering a perfect example of how strategists will be eyeing the recent Sterling rally..

Juckes argues GBP weakness is inevitable as the Bank of England has further easing to deliver while, "the press, at least, sounds complacent about the economy, and there’s no reason to alter a long-term target of 1.20-1.25,"

• Fresh off the press: GBP/EUR immediate-term support at 1.1665/1.1662, deeper falls if this breaks

Sterling's rally against the US Dollar over the course of the past week has so far netted just over 400 pips when the 24 hour best of $1.3272 was achieved. 

Richard Perry, a technical strategist with Hantec Markets says the pair has now reached the resistance of a shallow downtrend that has been in place since 27th June and currently is a barrier around $1.3280.

This comes as the momentum indicators have unwound to their strongest levels since Brexit.

"Will this be where the sterling rally starts to run out of steam again for the next sell off?" asks Perry.

That said, not everyone is willing to throw the towel in.

Professional trader Sean Lee, who heads up the ForexTell community, says he is looking to take a punt on further GBP upside:

"As always a dangerous game trying to pick interim bottoms after big trend moves but the risk-reward is very clear and very rewarding. That is again the case with the current set-up in cable and I’m starting to build a long position for a move to 1.37 and above. I have exited my EUR/GBP longs and will concentrate on this new trade for a few days and see how we go.

"My main reason is based on flow and positioning information. Real money short GBP positions are reportedly at record highs and with holiday time now upon us, liquidity will be reduced and traders will be nervous.

"A perfect formula for aggressive short-covering imho and I feel that if we break above 1.32 then we may see a sharp increase in bullish momentum to take us to 1.35 quick sharp."

Strong Data Confirms a More Sustainable Footing for UK Economy Following Brexit Vote

If fundamentals were in the driving seat then surely we would have seen GBP bid higher following the better-than-forecast data out of the CBI today?

The CBI Distrubutive Trades survey - which is a leading indicator for the retail sector - read at -5 for August, much better than the -14 forecast by economists. 

The survey of 131 firms, of which 58 were retailers, showed that the volume of sales grew modestly over the year, beating expectations for a further fall this month. However, sales volumes look set to be broadly flat over the next month.

The volume of orders placed upon suppliers fell for a fifth consecutive month although retailers expect them to grow somewhat in the year to September.

Foreign exchange traders and economists are desperate for every little scrap of economic data they can get their hands on in order to try and figure out just how significant the Brexit vote has been to the economy.

The forecasts made in the wake of the shock vote to exit Europe were dire with expectations for recession being routinely made by the world’s leading institutional researchers.

The actual turnout though, has actually been a lot less dire.

The CBI Industrial Trends survey, out earlier this week, showed an improvement in the manufacturing sector and actually reported exporters were seeing their strongest orders in two years.

This provided a good dose of positive sentiment into the GBP exchange rate complex.

With that in mind, today’s CBI Distributive Trades survey will be interesting as it will provide the latest snapshot of the UK retail sector in August, with markets anticipating a rebound to 0 from -14.

Earlier this month the ONS reported that retail sales for July were a great deal stronger than had been forecast, leading to a solid recovery in Pound Sterling exchange rates.

“We would not attach a huge weight to how well the survey predicts official retail sales, but it nevertheless may play into the sense that the post-referendum landscape is not as negative as feared a few weeks ago,” say Lloyds Bank in a foreign exchange briefing to clients ahead of the release.

Brexit Vote? It’s Not All that Bad says WPP’s Sorrell

As a sign of improved sentiment, note the words out of WPP’s Marin Sorrell.

Sorrell, a notable campaigner for the Remain vote at the referendum, has said, “What we saw after the vote – and it's only July, we haven't got the numbers for August – was the UK perking up a bit.”

As head of the world’s largest advertising and marketing agency, Sorrell has his finger on the pulse of UK business, and his observations will provide much-needed additional positive sentiment into the Brexit debate.

The UK economy, and the Pound by proxy, will require buckets of confidence as we enter the actual process of exiting Europe, and comments such as those from Sorrell are welcome in that regard.