28/07/2017 - Sterling Hits 10-Month High

GBP

Sterling hit a 10-month high against a broadly weaker dollar on Thursday, after the U.S. Federal Reserve left policy unchanged and appeared less confident about inflation picking up, which investors took as a sign rates could be kept lower for longer.

Against the euro, it has been a different story for sterling. As the single currency has rallied both on dollar weakness and expectations that the European Central Bank will tighten monetary policy layer this year, the pound has fallen to eight-month lows in recent weeks.

Data on Wednesday showed Britain's economy gathered only a little speed in the second quarter after almost stalling at the start of the year, pouring cold water on expectations for UK interest rate hikes in the coming months. Growth of 0.3 percent on the quarter was up from 0.2 percent in the first three months of the year, in line with forecasts. But that figure is likely to cement expectations that the Bank of England will keep interest rates on hold next week at their record low level, when they also release a quarterly Inflation Report.

Strategists say developments around Brexit will continue to be the main driver for the pound, which has fallen around 13 percent against the dollar since last June's referendum.

USD

The U.S. dollar rallied against the euro and yen on Thursday after solid U.S. economic data, bouncing back from lows plumbed after Wednesday's Federal Reserve monetary policy statement.

U.S. durable goods orders rose more than expected last month and a fifth straight monthly increase in shipments suggested that business spending on equipment would support economic growth in the second quarter. The good durable goods orders data was a welcome sign to dollar bulls, as U.S. economic data, including subdued inflation, and uncertainty surrounding U.S. President Donald Trump's proposed fiscal stimulus have sunk the dollar in recent months.

Analysts also said investigations into the Trump administration's ties to Russia, and the inability of Trump's fellow Republicans to push through the president's promised repeal of the 2010 Affordable Care Act, have reduced the likelihood of tax reform and infrastructure spending plans being enacted soon also.

Key Announcements 

13.30 – USD – Advance GDP QoQ; Forecast at 2.5% against previous of 1.4%