GBP/USD: the dollar sets the main tone in the market
Macro data from the UK published earlier this week failed to provide tangible support for the pound. Thus, the volume of consumer lending in January fell from 0.817 billion to 0.608 billion pounds (the forecast assumed an increase to 1.05 billion pounds). At the same time, despite the growth of the Markit index of business activity in the manufacturing sector in February (to 58.0 from 57.3 in January) and the BRC retail price index in the UK (in January the indicator increased by +1.5% to +1.8%), the GBP/USD pair reached a new 10-week local low near 1.3270 yesterday.
The main dynamics in the GBP/USD pair is still set by the dollar. Investors are inclined to buy it as a safe haven currency, fearing further escalation of tensions around Ukraine, while Western countries impose economic sanctions against Russian companies and individuals.
The American macroeconomic statistics released the day before turned out to be moderately optimistic and allowed us to hope that at the end of March, when the next meeting of the Fed will take place, the regulator will still go to tighten monetary policy. Thus, the index of business activity in the manufacturing sector from ISM in February increased from 57.6 to 58.6 points (the forecast was 58). The index of new orders from ISM in the manufacturing sector also significantly strengthened (from 57.9 to 61.7 against the forecast of 59.1).
The report presented on Wednesday, prepared by the research company ADP together with Moody's Analytics, based on information received up to and including February 12, indicated an increase in the number of jobs in the US private sector by 475,000 (the forecast assumed an increase of 400,000) At the same time, the January data were revised up sharply.
Fed Chairman Jerome Powell said Wednesday that at a meeting to be held in two weeks, he will propose raising the key interest rate by a quarter of a percentage point. He will propose such a solution in conditions of high inflation, steady demand in the economy and a strong labor market. With these statements, Powell almost did not affect the mood of investors, who expect that by the end of this year the rate will be raised by 175 basis points. Thus, the Fed will overtake other major world central banks in the process of tightening monetary policy, and the divergence of curves reflecting this process will contribute to the strengthening of the dollar.
From the news for today, market participants will pay attention to the publication at 15:00 (GMT) of the PMI index of business activity (from ISM) in the services sector of the US economy. Although the data from the services sector (unlike the manufacturing sector) have almost no impact on the country's GDP, the result above 50 is considered as a positive factor for the USD. Forecast for February: 61.1 (after 59.9 in January, 62.0 in December), which is likely to have a generally positive impact on the USD. Also at 15:00, the second speech of the head of the Fed Powell in Congress will begin. He will probably repeat his theses of yesterday regarding the prospects of monetary policy. Therefore, the reaction to his speech is likely to be weak. However, surprises are also not excluded. Any hints from Powell about the possibility of a more aggressive change in the current monetary policy will cause an increase in volatility on the US stock market and lead to a strengthening of the dollar.
And on Friday, the US Department of Labor will publish an official report on the number of jobs outside agriculture for February. Although the ADP data may differ significantly from the data of the Ministry of Labor from month to month, they are still considered their harbinger. Given the strong report from ADP, investors are hoping for an equally strong official report from the Ministry of Labor. Economists expect an increase in the number of jobs by 440,000 and a decrease in unemployment to 3.9%.