GBP/USD has traded a steady range over the last 24 hours as investors gear up for the FOMC Minutes tonight, central bank monetary policy announcements tomorrow and US employment data on Friday.
In late morning in London we see the pound to US dollar exchange rate (GBP/USD) is trading 0.07 pct higher at 1.6413.
The euro dollar exchange rate is 0.21 pct lower at 1.3587 while the Australian dollar to US dollar rate is flat at 0.8927.
NB: All the above quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.
Attempts to break higher fail
The pound dollar rate made two attempts to break below 1.6375 over the last day, "the dollar strengthening as a result of better than expected US trade data released yesterday afternoon," say UKForex in a note to clients.
The report showed the trade deficit shrank to $34.3 billion in November, by more than the $40.2 billion expected.
The USD was also supported across the board by heavy demand for USD/CAD after Canadian trade data and Ivey PMI printed weaker than expected and after dovish comments by the Bank of Canada’s Poloz who said that he was most worried by the low rate of inflation in Canada.
All eyes on the US today
All eyes will be on the US today. The ADP employment report will be the main focus followed by the FOMC minutes released this evening. The FOMC announced $10bn of ‘tapering’ at the December meeting; however, little detail was provided regarding the future pace of ‘tapering’.
"We expect market participants’ will watch domestic data closely, looking for clues as to the likely pace and frequency of further reductions in asset purchases. Despite both ISMs falling in December, the employment component for both surveys rose on the month and points to robust employment growth last month. Ahead of Friday's employment report, today's ADP release will provide a gauge for US payrolls," say Lloyds Bank Research.
"We may also get an indication as to when the Fed might begin raising interest rates. Because of this we’re perhaps likely to see narrow ranges persist in GBP/USD for most of the morning. It opens at 1.6415," say UKForex.
Lloyds also expect the market reaction to be binary, with a stronger outturn likely to suggest upside risks to payroll on Friday.
This will likely be seen as USD supportive on the view that a continued improvement in labour market conditions will reflect increased risks of a larger ‘tapering’, while a weak print would likely suggest less or no further ‘tapering’ at the January FOMC meeting.
The Minutes will also be watched closely for more clarity on the decision to ‘taper’ and for any insight into the likely strategy for the reduction in asset purchase.