The Pound US Dollar (GBP/USD) exchange rate ended the weekly session on a high, quoted at 1.24453 as currency markets closed.
EUR/USD had also risen on Friday, bolstered by weakness in the US Dollar, sparked by Fed Chair Powell's US banking sector comments, profit-taking and a correction.
The Pound Sterling had been relatively resilient towards the end of the week but struggled to make any significant headway on the major crosses while US currency moves dominated global currency moves.
The US Dollar posted notable gains and the Pound to Dollar (GBP/USD) exchange rate posted steady losses to fresh 3-week lows just below the 1.2400 level.
A rally attempt faltered quickly on Friday with GBP/USD held close to 1.2400.
Dollar Secures Further Gains
ING noted; “GBP/USD is being driven almost entirely by the dollar leg at this stage, with comments by some Bank of England officials yesterday not having a sizeable FX impact.”
The US Dollar (USD) exchange rates were able to make further headway on Thursday with three significant catalysts.
The Philadelphia Fed manufacturing index recovered to -10.4 for May from -31.3 the previous month and stronger than consensus forecasts of -19.8, although new orders continued to contract.
Inflation readings were mixed with a slightly faster rate of increases for prices paid while prices received edged lower at a faster rate.
Companies are less optimistic over the outlook while pricing pressure are expected to be stronger.
Markets noted the risk of sticky inflation pressures.
US Initial jobless claims declined to 242,000 in the latest week from 264,000 previously and significantly below consensus forecasts of 254,000 while continuing claims were marginally lower at 1.80mn from 1.81mn previously.
The data overall eased concerns surrounding a weaker economy.
Dallas Fed President Logan stated that the central bank still has work to do to achieve price stability and she is concerned whether inflation is falling fast enough.
She recognises the risk of tightening too far or too fast, but added that she considers the data at this time does not support skipping a rate hike at the June meeting. Although the data in coming weeks could show it is appropriate to pause, the evidence is not there yet.
There was a repricing of interest rate expectations with Fed Funds rate futures indicating close to a 40% chance that there would be a further rate hike in June.
Markets were also optimistic that the US would reach a deal on raising the debt ceiling. The Treasury will issue a very high volume of bonds if a deal is reached and US yields continued to move higher.
Thierry Wizman, global FX and rates strategist at Macquarie commented; "It's pretty clear that some people were shorting the dollar as a hedge in anticipation of a crisis, but now with all the signals that we will find a resolution in the next few days, people are unwinding these positions so the dollar is strengthening."
ING added; “It's hard to buck the dollar's bullish momentum now, as we also think some substantial squeezing of short USD positions can be behind the move.”
According to MUFG; “if the US rates market continues to price a greater probability of a June hike, then further dollar gains over the short-term are likely.”
Pound Sterling Unmoved by 15-Month High in UK Consumer Confidence
The UK GfK consumer confidence index improved to –27 for May from –30 the previous month. This was in line with consensus forecasts and the strongest reading for 15 months.
Consumers overall were more confident over personal finances and the wider economic outlook and all major sub-indices improved on the month.
Joe Staton, GfK's client strategy director commented; "The overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think."
He still noted an element of caution; "But everybody must hold on tight as it could still be a rocky ride out of these tough times."
There are suspicions that the more positive UK outlook has been priced in.
According to UoB; “GBP is likely to weaken further; a clear break of 1.2390 will suggest it could drop to 1.2350, as low as 1.2300.”
EUR/USD had also risen on Friday, bolstered by weakness in the US Dollar, sparked by Fed Chair Powell's US banking sector comments, profit-taking and a correction.
The Pound Sterling had been relatively resilient towards the end of the week but struggled to make any significant headway on the major crosses while US currency moves dominated global currency moves.
The US Dollar posted notable gains and the Pound to Dollar (GBP/USD) exchange rate posted steady losses to fresh 3-week lows just below the 1.2400 level.
A rally attempt faltered quickly on Friday with GBP/USD held close to 1.2400.
Dollar Secures Further Gains
ING noted; “GBP/USD is being driven almost entirely by the dollar leg at this stage, with comments by some Bank of England officials yesterday not having a sizeable FX impact.”
The US Dollar (USD) exchange rates were able to make further headway on Thursday with three significant catalysts.
The Philadelphia Fed manufacturing index recovered to -10.4 for May from -31.3 the previous month and stronger than consensus forecasts of -19.8, although new orders continued to contract.
Inflation readings were mixed with a slightly faster rate of increases for prices paid while prices received edged lower at a faster rate.
Companies are less optimistic over the outlook while pricing pressure are expected to be stronger.
Markets noted the risk of sticky inflation pressures.
US Initial jobless claims declined to 242,000 in the latest week from 264,000 previously and significantly below consensus forecasts of 254,000 while continuing claims were marginally lower at 1.80mn from 1.81mn previously.
The data overall eased concerns surrounding a weaker economy.
Dallas Fed President Logan stated that the central bank still has work to do to achieve price stability and she is concerned whether inflation is falling fast enough.
She recognises the risk of tightening too far or too fast, but added that she considers the data at this time does not support skipping a rate hike at the June meeting. Although the data in coming weeks could show it is appropriate to pause, the evidence is not there yet.
There was a repricing of interest rate expectations with Fed Funds rate futures indicating close to a 40% chance that there would be a further rate hike in June.
Markets were also optimistic that the US would reach a deal on raising the debt ceiling. The Treasury will issue a very high volume of bonds if a deal is reached and US yields continued to move higher.
Thierry Wizman, global FX and rates strategist at Macquarie commented; "It's pretty clear that some people were shorting the dollar as a hedge in anticipation of a crisis, but now with all the signals that we will find a resolution in the next few days, people are unwinding these positions so the dollar is strengthening."
ING added; “It's hard to buck the dollar's bullish momentum now, as we also think some substantial squeezing of short USD positions can be behind the move.”
According to MUFG; “if the US rates market continues to price a greater probability of a June hike, then further dollar gains over the short-term are likely.”
Pound Sterling Unmoved by 15-Month High in UK Consumer Confidence
The UK GfK consumer confidence index improved to –27 for May from –30 the previous month. This was in line with consensus forecasts and the strongest reading for 15 months.
Consumers overall were more confident over personal finances and the wider economic outlook and all major sub-indices improved on the month.
Joe Staton, GfK's client strategy director commented; "The overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think."
He still noted an element of caution; "But everybody must hold on tight as it could still be a rocky ride out of these tough times."
There are suspicions that the more positive UK outlook has been priced in.
According to UoB; “GBP is likely to weaken further; a clear break of 1.2390 will suggest it could drop to 1.2350, as low as 1.2300.”