- Pound among best performers of the week on BoE and Brexit optimism.
- DXY drops to monthly lows after Fed rate hike and amid concerns of a global “trade war”.
GBP/USD rose on Friday and recovered from yesterday’s losses. The pound resumed the rally and climbed back above 1.4100. The pound was about to end the week with strong gains.
The pound opened the week on Monday with important gains on the back of advances in Brexit talks, breaking above 1.3950/60. Accelerated to the upside on Wednesday following the FOMC meeting boosted by a decline of the US dollar. On Thursday, Cable peaked at 1.4212 after the release of the Bank of England’s decision and minutes but failed to hold above 1.4200 and reversed. Today gained ground during the US session, consolidating weekly gains.
“The pound was quick to give up the gains made immediately after the BoE’s March policy statement. Although the news that two members had voted for an immediate rate increase provided a hawkish headline, the market was already very strongly priced for a May move. Looking forward the pound is likely to continue deriving support from expectations that the Bank could hike rates both in May and potentially in November. However, politics related to Brexit could yet create scope for volatility in sterling during the course of the next 12 months”, said analysts from Rabobank.
GBP/USD was about to end far from the weekly top but the bullish trend remains intact. If it manages to finish above 1.4150, it would be the highest weekly close since the Brexit referendum (June, 2016).
In the US, next week will bring more speeches from FOMC members that will be particularly interesting after Wednesday’s rate hike. Regarding data, the Personal Income and Spending report is due on Thursday including the PCE core inflation (indicator followed closely by the Fed) and on Wednesday, Q4 GDP 3rd estimate.
“After a hectic week in the UK, next week is set to be quieter, as there are no important events scheduled yet and mostly tier-2 data releases. The most interesting release is the service index (measuring actual growth in the service sector) in January. The week after Easter is more interesting, as we are due to get PMIs for March,” wrote analysts at Danske Bank.
Market participants will also look at what the White House does regarding tariffs and the response from the rest of world, particularly China as concerns about a trade war continue to rise.
Next week volume is likely to drop toward Friday. Wall Street will remain closed on the 30th due to Good Friday.
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