The Pound to US Dollar exchange rate tanked to a monthly low last week as dovish Bank of England sentiment weighed on ‘Cable’ ahead of this week’s Federal Reserve policy meeting.
British Inflation Data Hurts Pound
Sterling began the week on the front-foot against the ‘Greenback’, rallying 60 pips in response to comments from Fed policymaker Lael Brainard suggesting that global economic uncertainties meant it was inappropriate to raise interest rates in September.
However, GBP/USD tumbled by around -150 pips on Tuesday as UK inflation printed at 0.6%, missing forecasts of 0.7% in August. The underwhelming result was seen to give the BoE slightly more room to manoeuvre when considering loosening monetary policy.
‘Cable’ ticked higher by around 70 pips on Wednesday thanks to UK labour data showing that unemployment remained at a decade-low of 4.9% in July. Traders had feared that the jobs market suffered following ‘Brexit’ but the data proved otherwise and this bolstered confidence in the British economy.
BoE Paves Way For November Rate Cut
On Thursday the BoE left interest rates unchanged at 0.25% and opted against boosting its £435 billion asset purchasing target. However, the Pound suffered in response to comments from Governor Mark Carney indicating that the bank rate would probably be slashed again in November unless economic data were to improve markedly between now and then. Sterling declined by around a third of a cent against the US Dollar, however, GBP/USD’s losses could have been greater were it not for a disappointing -0.1% US retail sales print.
The Pound continued to depreciate against the ‘Greenback’ on Friday, shedding a further two-and-a-half cents to strike a new monthly trough below 1.30 as BoE easing bets swelled. UK central bank policymaker Kristin Forbes said that a weaker Pound would help rebalance Britain’s trade deficit, which bolstered expectations of further monetary loosening measures from the Bank of England.
Fed Meeting in Focus
The main event to look out for on the economic calendar this week is the Federal Reserve policy meeting on Wednesday evening. The US central bank is seen as having just a 12% chance of hiking rates this month but analysts will be very interested in Chairwoman Janet Yellen’s accompanying press conference. If Yellen opens the door to a rate hike before the year’s end then we could easily see a surge in demand for the US Dollar. But if the bank Chief opts to play her cards close to her chest then the ‘Greenback’ could suffer.
A hawkish message could send GBP/USD down towards three-decade lows of 1.28, while a neutral tone could help push ‘Cable’ back towards 1.32.