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A weak UK Gross Domestic Product reading helped to bolster the US Dollar against the Pound on Tuesday, while the Euro began to regain strength on the back of better-than-expected surveys of Eurozone business sentiment.
As general market expectations were for the Federal Open Market Committee (FOMC) to leave interest rates unchanged at the October meeting, sentiment towards the ‘Greenback’ remained relatively subdued in the early week. Odds for a rate hike were rated at 4% ahead of the announcement with the majority of economists having pushed back their bets for the first move in the Fed’s monetary tightening cycle to come in 2016. Traders were given little incentive to buy into the US Dollar as the domestic Services PMI and Consumer Confidence readings for October both slumped markedly on the month.
However, while policymakers opted to leave the cash rate unchanged at its record multi-year low of 0.25% the accompanying statement proved unexpectedly hawkish, indicating that a December interest rate rise is still on the table.
In response the ‘Greenback’ went on a bullish run across the board, with the Pound to US Dollar (GBP/USD) exchange rate falling to 1.5251 and the Euro to US Dollar (EUR/USD) exchange rate slumping to a monthly low of 1.0903.
While the US Dollar remained dominant against the Pound on Thursday, the Euro achieved a rally on the back of a positive German Unemployment Change figure.
The chances of a 2015 Fed interest rate rise took something of a blow, however, with the publication of the third quarter US GDP and Personal Consumption figures. As both printed at weaker levels than had been forecast, with economic growth slowing sharply from 3.9% to 1.5%, the outlook of the US Dollar was somewhat diminished.
Influential US data for release in the coming week includes the latest Markit and ISM Manufacturing PMIs, Factory Orders figure, Employment Change reading and the domestic Balance of Trade. With pundits anticipating a slightly mixed bag of results, the ‘Greenback’ could stand to experience fresh volatility. The expected uptrend in domestic Factory Orders would be largely US Dollar supportive, offering reassurance in the economic outlook of the nation, while the forecast widening of the trade deficit could put a dampener on the chances of an imminent Fed policy change.
The UK’s Manufacturing, Construction and Services PMIs for October will be published over the course of the next week and could offer some support for the Pound if they show a pickup in output. However, investors may remain cautious ahead of the latest Bank of England (BoE) policy meeting. While the meeting itself is unlikely to yield any results, the minutes and inflation report published after the gathering could provide an insight into the BoE’s feelings regarding future policy outlook and trigger Sterling volatility.
A raft of Eurozone PMIs are also set for release, which could help to boost the appeal of the common currency against rivals should these show a relative improvement in output.
During Thursday’s European session the Pound Sterling to US Dollar (GBP/USD) exchange rate was trading in the region of 1.5257 while the Euro to US Dollar (EUR/USD) currency pair was trading in the region of 1.0942.