US Dollar Exchange Rates - GBP/USD Exchange Rate Higher As Pound Sterling Rallies On BoE Report

Published: 27 Jun 2014 01:06 Currency Markets

Pound Sterling to Dollar Exchange Rate
Pound Sterling Today - The British pound traded 0.23 per cent higher on Thursday, taking GBP/USD close to the best exchange rate levels seen for five years. Cable rebounded as the Bank of England announced measures to safeguard the UK's economic recovery.

Gains were limited for the currency pair though, as a FED official dismissed the recent poor US Q1 data and forecasted better interest rates. The pound to dollar exchange rate rose 0.28 per cent higher to trade at 1.70281. The cable's last 7 day range is 1.6985-1.7039 GBP/USD.

The GBP remained on the back foot throughout Wednesday's early trading, consolidating declines as the Confederation of British Industry’s Reported Sales gauge unexpectedly dropped to a seven month low of +4 in June instead of climbing to +23 as forecast.

The measure had read at +16 in May. The CBI issued the following comment with the report; ‘Whilst it seems that hopes that retail spending would be boosted by a strong performance by England at the World Cup were as over ambitious as aspirations for a good performance, I’m reassured that consumer confidence is still on the up, as household budgets are being bolstered by falling inflation’. After the data was released economist Howard Archer intimated that the slowing in sales growth in June is enough to make investors question whether consumer spending will be able to pick up notably while wage growth remains so tepid.

The UK’s near stagnant wage growth was one of the main causes for concern highlighted by Bank of England Governor Mark Carney during yesterday’s surprising speech.

British Pound to Dollar Rate Falls after GDP

However, while the GBP/USD exchange rate was struggling for most of Wednesday, it was granted a reprieve towards the close of local trading.

The Pound briefly pushed up above 1.70 against the US Dollar as investors came to terms with the news that the US economy contracted by considerably more than anticipated in the first three months of the year. Poor weather conditions led to the world’s largest economy shrinking by the most considerable amount for 5 years in Q1. The previous estimate for contraction of 1.0% was revised to contraction of 2.9%. This was one of the Commerce Departments steepest revisions on record and was largely due to a considerable decline in healthcare outlay.

However, while the report caused some weakness in the US Dollar, industry experts don’t believe it’s indicative of a prolonged period of slowing US growth. Indeed, recent reports suggest that the US enjoyed a healthy rebound in the second quarter of the year. In the opinion of economist Sam Coffin, the report doesn’t reflect fundamentals as in ‘the second quarter, we’ll see some weather rebound and a return to more normal activity after that long winter.’

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The Poor US growth report was followed by other disappointing figures, including an unforeseen drop in US Durable Goods Orders.

Durable Goods Orders had risen by 0.8% in April and it was expected that they would stagnate in May, but they actually drooped by 0.1%. Similarly, personal consumption in the world’s largest economy had been forecast to register a 2.4% increase, but it only rose by 1.0%. On the upside the Markit US Services PMI measure rallied to 61.2 from 58.1 in June.

Also today, Federal Reserve Bank of New York President William Dudley asserted that investors shouldn’t count on US interest rates being increased in mid 2015.

After refusing to hazard a guess as to when the first rate increase might take place, Dudley commented; ‘In the current environment it’s still very, very appropriate to continue to follow very accommodative monetary policy. We’ve said very clearly that what we are going to do depends on how the economy evolves.’

Dollar Rate Forecast: Tomorrow’s UK housing figures could trigger movement in the GBP/USD pairing, although the US reports (like the nation’s personal income data) will be worth noting.

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