The Pound to US Dollar exchange rate surged through longstanding psychological resistance to strike a 10-month high last week.
Sterling Stumbles as BoE’s Broadbent Avoids Policy Talk
Bets of a rate hike from the Bank of England in August were dealt a blow last Tuesday when policymaker Ben Broadbent chose to talk about Brexit trade dynamics rather than monetary policy. This was seen by investors a sign that his opinion has not changed since June, when he voted to leave rates on hold.
The latest statements from officials at the central bank suggest that policymakers will once again vote 5-3 against raising rates at this juncture.
‘Cable’ Recovers on Janet Yellen’s Inflation Concerns
Sterling inched higher versus the US Dollar on Wednesday despite a 1.8% average earnings figure signalling that Britons are currently experiencing negative real wage growth. This means that inflation is outpacing wages, which could derail economic growth later down the line.
Optimistically, however, the headline UK unemployment rate struck a new 42-year low of 4.5%.
Over in the US, Federal Reserve Chairwoman Janet Yellen noted that moderate growth would likely warrant ‘gradual increases’ in interest rates. Demand for the ‘Greenback’ stuttered though when she singled out subdued inflation as a particular ‘uncertainty’ that could affect monetary policy.
GBP USD Exchange Rate Surges to 10-Month High
Hawkish comments from BoE policymaker Ian McCafferty suggesting he would be voting for higher rates in August and was in favour of winding down QE ahead of schedule bolstered the appeal of the Pound on Thursday.
GBP/USD popped on Friday, rapidly smashing through longstanding psychological resistance and soaring to a 150-pip daily gain as US data disappointed.
The latest US CPI print saw inflation drop from 1.9% to 1.6%, while retail sales unexpectedly declined -0.2%. This drove the US Dollar lower as market expectations of rate hikes over the next 18 months dropped to just 37.5 basis points, markedly lower than the 100 basis points projected by the Fed.
UK Inflation Set to Inspire GBP/USD Movement
Last week Sterling benefitted from a newfound conciliatory tone from the UK government regarding Brexit, however, contrasting views within the Conservative party could lead to more friction – and pressure on the Pound – later down the line.
The main economic release to look out for this week is the UK inflation print for June, which is tipped to remain at a four-year high of 2.9%. Anything above 3.0% would likely be seen as a bullish signal for Sterling as BoE rate hike bets rise, however, a cooling of consumer pressures could weigh on the Pound.