Pound rose as euro and US dollar awaited FOMC announcements

The latest UK GDP figures came in on forecast, which at least removed the shock of a sluggish rebound in growth after the first-quarter slowdown.

Sterling has risen today after last night’s US Federal Open Market Committee (FOMC) meeting proved to be a disappointment. GBP/EUR has climbed above €1.120, GBP/USD has hit US$1.315. While GBP/AUD has slipped lower to AU$1.636, GBP/NZD has inched up to NZ$1.745 and GBP/CAD to CA$1.635.

UK retail data will be released later, but will key US releases steal the show? Read on to find out what’s going to keep GBP exchange rates unsettled today…

What’s been happening?

Yesterday saw the release of UK second-quarter GDP figures.

Forecasts of an uptick to 0.3% on the quarter and a slowdown on the year from 2% to 1.7% proved accurate, so the sluggish data didn’t have a particularly strong impact upon the pound.

The figures showed that the UK economy had grown for 18 consecutive quarters, but also that 2017’s growth in the first half was the worst six-month period for five years.

Growth was once again propped up by the services sector, which grew 0.5%, as industry contracted -0.4% and construction contracted -0.9%.

Both the euro and the US dollar were largely on weak form as markets awaited the evening’s announcements from the US Federal Open Market Committee (FOMC).

The FOMC’s latest monetary policy meeting finished yesterday evening and markets spent the day on hold.

Odds of an interest rate hike in December - seen by markets as the earliest possible chance of another increase - were at 52% before the outcome of the meeting was revealed.

Therefore markets had a strong incentive to wait until the evening’s announcements before buying into EUR or USD.

The meeting turned out to be something of a disappointment. The Fed did confirm it is likely to start reducing its pile of government bonds amassed through quantitative easing soon.

Policymakers sounded less confident on inflation, however, pushing down the odds that they will hike interest rates again this year.

What's coming up?

There isn’t much on the UK and Eurozone data calendars today.

What UK data there is will still be influential regardless, as the Confederation of British Industry’s (CBI) retail data is due to be published. As the latest UK GDP data has shown that the service sector is entirely responsible for economic growth, markets will want to see that retail continues to put in a strong performance, otherwise the economy could weaken further.

The Eurozone also releases retail data, as well as the latest GfK consumer confidence survey; both covering Germany.

However, it will be the US data that has the biggest impact upon many of the major currencies.

If the markets have finished focussing on the outcome of the FOMC meeting, volatility is likely to pick right back up again when the preliminary durable goods orders and advance goods trade balance, both for June, are released.

Durable goods orders are expected to see a strong recovery after May’s -0.8% decline, with economists having pencilled in an increase of 3.5%.

Meanwhile, the advance goods trade deficit is expected to narrow to -US$65.5 billion.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.