The Pound to US Dollar exchange rate rallied by around two cents last week as rumours of a breakthrough in the Brexit negotiations bolstered the appeal of Sterling. A sturdy UK CPI report could send GBP/USD higher again during this week’s session.
Pound Sterling (GBP) Exchange Rates Receive Brexit Boost
There were a couple of news items that helped Sterling strengthen versus the US Dollar last week, but the primary motivation was centred on Brexit.
Speculation suggested that the EU had started internal discussion around offering Britain a two-year transition deal, and was willing to offer this in exchange for the UK settling its Brexit divorce bill.
The Pound rose as the prospect of progress and a transition deal increased.
The ‘Greenback’, meanwhile, came under a little pressure following a cautionary Federal Reserve minutes report, which featured concerns over price pressures, and a slightly lower-than-anticipated US CPI print, which came in at 2.1% compared to calls for 2.2%.
GBP/USD Could Rally on Strong UK CPI Print
Most of the major events on the calendar this week relate to the Pound, with Tuesday’s UK consumer price index report topping the bill.
Markets are primed for inflation to rise from 2.9% to a fresh five-year high of 3.0%, which would probably boost expectations for a Bank of England (BoE) rate increase on 2nd November. A score of this nature could send GBP/USD higher, however, an underwhelming print could derail the recent rally.
In a testimony to lawmakers, BoE Governor Mark Carney is likely to hint at higher rates in November and this could also play into the Pound’s hands.
Investors will also be looking out for the UK labour market report, which is tipped to see unemployment remain at a 42-year low of 4.3% and earnings growth hold steady at 2.1%. A higher wage growth figure would likely bolster BoE rate hike bets, while a disappointing reading could hold Sterling back.
The Pound to US Dollar exchange rate stands in the middle of its recent range, meaning that shifts in sentiment could lead to gains, or losses, of around 200-300 pips.