GBP/USD Exchange Rate Pushes Higher, GBP/USD Above 1.600 as US Economic Docket Disappoints

The tables have finally turned for the under-pressure pound dollar exchange rate (GBP/USD) which has seen its losing streak interrupted for the time being. 

The US dollar rally came to an abrupt end following the release of data that has shown traders that the US economic recovery may not be as strong as previously thought.

The pound used this opportunity to retake the 1.600 level - we see this as a key level of support and that it has held will offer some respite to those looking to buy the dollar.

As we move through the final trading session of the week the markets look as follows:

• The pound to dollar exchange rate (GBP/USD) is 0.04 pct lower at 1.6081.
• The euro to dollar exchange rate (EUR/USD) is 0.46 pct lower at 1.2751.
• The US to Canadian dollar exchange rate (USD/CAD) is 0.06 pct lower at 1.1252.

Note: The above quotes are taken from the wholesale markets, your bank will affix a spread to the rate at their own discretion. By actively seeking out a better rate with an independent FX provider you could get closer to the market and save up to 5% more FX in the process. Please find out how.

Why has the US Dollar Fallen?

It's all down to economic data at present. On Wednesday the New York Empire State Manufacturing Index (Sep) came in at 6.17, well below expectations for 20.50. This sparked a dive in the USD.

PPI inflation data came in at 1.6 pct month-on-month in September, analysts had expected 1.8 pct confirming that inflationary pressures may be waning. Note how the GBP plummeted on Tuesday on similar deflationary signals.

And Retail Sales ex Autos (MoM) (Sep) came in at -0.2 pct - analysts had expected growth of 0.3 pct.

This is worrying - it appears the US economy has started to slow down. While this has been expected to be happening in the UK economy it was expected that the US would steam ahead.

We see this as being a sudden, and rude, interuption to the USD bull run.

British Pound: Strong Employment Data Offers Support

The GBP meanwhile, by way of contrast, saw some positive data being released mid-week.

UK unemployment rate declined to 6% - the lowest level since the credit crisis of 2008. However, the headline data masked the fact that the claimant count declined only to -18K from -35K eyed indicating a slowdown in the reduction of jobless rolls.

On the other hand wage growth perked up a bit with average wages ex bonus rising 0.9% from 0.8% the 3 months prior indicating that the pickup in economic activity is slowly but surely starting to translate into better wage gains.

The outlook for the UK consumer continues to improve with wages rising and inflation falling. The flipside to the coin however is that falling inflation take the pressure off the Bank of England to raise rates; as such markets have pushed back their interest rate expectations to mid-2015 sending the pound lower in tandem.

Euro Dollar Exchange Rate is Big Winner, But Can it Last?

The biggest gainer, at the expense of the dollar, is the euro.

ForexLive note: "We’re up through 1.27 to 1.2726 after the round of retail, price and manufacturing data. It’s been the perfect storm for the euro with a hat trick of dollar bearish numbers.

"If some in the market were still hesitating on pushing back rate expectations then these are the type of numbers that will help make up their mind.

"1.2750 is the bigger level to watch on this run then 1.2780/90/800."

Commenting further on the euro dollar dynamic is Omer Esiner at Commonwealth Foreign Exchange:

"The euro bounced against the greenback after this morning’s batch of soft U.S. economic data but remains well within recent ranges against.

"Overnight, a light economic data calendar kept the single currency hemmed in relatively tight ranges. However a gauge of inflation expectations in the 18-member bloc fell further overnight.

"Falling inflation expectations add to the growing list of data that argue for further monetary support from the ECB. Consequently, any upside the euro enjoys against the dollar should remain limited."