GBPUSD Boosted by US Retail Sales Disappointment, Dollar to Remain Supported Long-Term
The British pound has enjoyed a week of advances against the US dollar with disappointing US retail sales ensuring a strong end to the week for GBPUSD.
It was exactly a week ago when the GBPUSD was headed in the other direction in the wake of strong employment figures that has convinced markets the US Federal Reserve will start raising interest rates. US retail numbers showed growth of 0.2%, below the 0.4% growth figure analysts had priced the USD in ahead of the release.
UK gilt futures ticked higher by 20 points in the wake of the retail figures and took GBP higher alongside.
We now see the pound to dollar conversion sitting at 1.5529 on the spot markets, our international bank payment guideline is pricing a retail rate at 1.48 and transfer specialists are offering transfers closer to the market at 1.5044.
The pound could be on track to record its 5th day of advances against the dollar, but even if it were to achieve this it would represent roughly 50% of the previous weeks declines.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3342▲ + 0.12%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2889 - 1.2942 |
**Independent Specialist | 1.3155 - 1.3209 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
“GBPUSD is trading in a range just below this week’s peak near 1.5245. The short-term up trend looks well-supported but taking a step back and looking at the bigger picture, gains appear largely corrective in the past couple of days and the broader downtrend persists,” says Shaun Osborne at Scotiabank.
Osborne says a loss of support at 1.5205/10 intraday will pull Cable pack to earth.
The longer-term picture would suggest a break below 1.50 would be hard to achieve before the end of 2015. A note from TD Securities suggests that the USD should see its peak in early 2016 which, if correct, would suggest that the downside in GBPUSD should be protected into 2016.
US Interest Rate Rise Still on = USD Support
Backing the longer-term pro-USD stance is the prospect of rising interest rates in the United States. The bottom line is that retail sales data has not torpedoed the case for higher rates in December.
"Indications of a continued solid pace of domestic spending support the case for the Fed to start to withdraw some of the current highly accommodative monetary stimulus. Volatility in global financial markets was a factor staying the Fed’s hand at the September Federal Open Market Committee (FOMC), although pressures along this front have subsequently eased," says Paul Ferley, Assistant Chief Economist, RBC Economics.
With upcoming data expected to provide further confirmation of solid economic growth, RBC's outlook for monetary policy is that the fed funds range will increase by 25 basis points to 0.25% to 0.50% at the December 16, 2015 policy meeting.
