Sterling has appreciated by around three cents to strike a two-and-a-half-month high against the US Dollar since the start of last week’s session. Geopolitical concerns and calls for early UK elections contributed to GBP/USD’s gains.
British Data Boosts Pound
The Pound got off to a decent start last week when UK inflation data came in at a joint-three-year high of 2.3%. Traders were buoyed by the fact that price pressures are likely to accelerate further in April, when Easter air fare price hikes come into the equation. In 2016, the Easter period saw a 22.9% rise in plane fares.
Sterling remained well bid on Wednesday when UK unemployment printed at a joint-41-year low of 4.7% and wage growth inched higher from 2.2% to 2.3%. Joblessness was reported to have fallen by 45,000, while 39,000 new jobs were created.
Dollar Drops On Trump
Demand for the US Dollar dipped significantly towards the end of last week’s session on remarks from US President Donald Trump suggesting that he was a fan of the Federal Reserve’s low interest rate policy. Trump noted the US Dollar was getting ‘too strong’, which caused markets to reevaluate their bets of additional Fed tightening over the next few years.
Trump also sanctioned the dropping of bombs on Syria and Afghanistan, before issuing threats to North Korea. The pariah state replied with threats of their own, a military parade and a failed missile test. Investors viewed the heightened geopolitical tension through the prism of monetary policy and concluded that military action would lead to chaos in financial markets and therefore would weaken the possibility of further rate hikes from the Fed. This drove the ‘Greenback’ lower.
Week Ahead
‘Cable’ raced to a new two-and-a-half-month-high on Tuesday morning when UK Prime Minister Theresa May announced plans to hold a general election on June 8. Markets viewed the election as positive for the Pound because it is widely believed that the Conservative party will gain a large majority, which will likely strengthen their hand in the upcoming Brexit negotiations.
Speculation surrounding the surprise British vote will continue driving volatility in GBP/USD this week, as will any further provocations between the US and North Korea.
Also on the agenda is a UK retail sales report, a couple of speeches from Bank of England Governor Mark Carney, a US industrial production print and a US manufacturing PMI release.