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Pound climbs steadily as week comes to a close

By Dean Weller

It was another very quiet day for the pound (apparently everyone was at Royal Ascot) as it traded in a very narrow range against the US dollar. This was despite the morning release of UK factory orders hitting 29 year highs for this month. Whilst the city and the market welcomed this very positive news, it was not reflected in any significant uptick in GBP/USD, perhaps due to the fact that manufacturing only contributes a small portion of Britain’s GDP. Either way the news did confirm that the UK manufacturing sector is continuing to thrive in the wake of Brexit. It would appear that the main drag on the pound at the moment is the focus on Prime Minister Theresa May and the fact that she has not yet organised an agreement with the Democratic Unionist Party. With a vote on her legislation due next Thursday, it is a crucial 6-7 days for the PM where every single vote will count. Likewise, it will be a crucial and testing time for the pound. If May’s government has a rocky start to the Parliamentary session then GBP/USD could struggle and the key 1.25 resistance level could be tested.

 

The US dollar could not take advantage of the solid job data released in the afternoon either. Whilst the number of Americans who were filing for job claims only inched up by 3000, figures around 240,000 still indicate a very healthy labour market. The Federal Reserve’s James Bullard did announce in a speech that the Fed’s current interest rate rise plan is ‘unnecessarily aggressive’. Once again though, these dovish comments could not excite the market as this year he is not a FOMC voting member.



Friday will certainly be the Euro’s biggest day of the week as we have the important PMI figures scheduled. Yesterday was a good day for the Eurozone economy as it announced its highest levels of consumer confidence in 16 years. The fact that growth accelerated to 0.6% in Q1 of 2017, and unemployment is at a seven year low, shows that the Eurozone is recovering in a stable fashion. Despite yesterday’s positive economic data though, GBP/EUR traded in a narrow range and GBP/EUR was reflective of how subdued the market was in general.



There was no Australian data or market news released yesterday so on Thursday the Aussie dollar’s performance was largely driven by events elsewhere coupled with the drops in iron ore and copper prices. The recent strength of the Australian dollar will put downside pressure on inflation and once again there is little Australian data out next week.

The New Zealand dollar continues to perform well and once again tested the key support level of GBP/NZD 1.74 (IB). The Kiwi strength has followed the recent outlook from the Reserve Bank of New Zealand. Indeed the RBNZ said that the stronger currency would help rebalance growth.