Pound Jumps to 4-Year Highs

 | Jun 19, 2014 12:57PM ET

GBP/USD continues to post gains on Thursday, as the pair trades in the mid-1.70 range in the North American session. The pound is now at its highest level against the dollar since 2008. On the release front, British CBI Industrial Order Expectations soared to a six-month high, but Retail Sales declined in May. US numbers enjoyed a strong day, as Unemployment Claims and the Philly Fed Manufacturing Index both improved and beat their estimates.

There was positive economic news out of the US on Thursday, as Unemployment Claims dipped to 312 thousand last week, beating the estimate of 316 thousand. As well, the Philly Fed Manufacturing Index, which has been on the upswing for most of 2014, continued the trend and improved to 17.8 points, crushing the estimate of 14.3. This was the index's strongest reading since last August, and points to a manufacturing sector which is expanding in order to keep up with increasing demand.

The Federal Reserve continued to trim its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won't see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as "steady as she goes".

In the UK, the pound gained on strong manufacturing numbers, as CBI Industrial Order Expectations jumped to 11 points, easily beating the forecast of 3 points. It was the indicator's best showing since last November, and points to more robust UK manufacturing sector. Retail Sales, the primary gauge of consumer spending, was unable to keep pace. The indicator came in with a weak reading of -0.5%, its first decline since January. The pound managed to shrug off this poor reading since it matched the forecast.

On Wednesday, the BOE opted to hold the course with regard to the benchmark interest rate and the asset purchase program, and as expected, the minutes showed that these decisions were both unanimous (9-0). The BOE kept interest rates at 0.50%, and QE at 375 billion pounds. There has been much speculation about when the BOE might raise rates, and Governor Mark Carney singlehandedly caused a run on the pound last week, after stating that a rate increase could occur earlier than expected by the markets. Had the rate decision not been unanimous, we could have seen the high-flying pound climb even higher.

Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App