GBP awaits key data for a clear direction

Daily Currency Update

The Pound picked up strength against the US Dollar during the Asian session on Monday. A weaker US Dollar supported the movement in the currency pair whilst the risk sentiment continues to dominate the market ahead of the key UK employment data and US Retail Sales that will be released on Tuesday.

Today, the printed release for the UK’s Rightmove House Price Index showed a rise of 0.5% month on month in October versus 0.4% in the previous month. While on an annual reading, the figure dropped by 0.8% from the 0.4% decline of the previous reading. It is worth noting that the Bank of England Governor Andrew Bailey recently stated during the International Monetary Fund meetings in Morocco at the weekend, that rising borrowing costs were affecting the housing market and employment. Andrew Bailey pointed out that interest rates in the UK will likely remain around the current 5.25%, given that restrictive policy is required to return inflation to 2%.

In the US, whilst the Dollar gained traction towards the end of the week mainly due to the US CPI data released on Thursday, the Pound lost around 1.2% against the safe haven currency. US CPI confirmed once again the sticky inflation conditions with a month-on-month reading at 0.4% vs 0.3% forecasted and with a reading of 3.7% vs 3.6% forecasted year on year. Indicating a possible rate rise by the Federal Reserve by the end of the year due to the higher inflation expectations helping the US Dollar gain strength against major currencies toward the end of last week.

The pound has retracted significantly from the highs reached not so long ago against the US Dollar. Investors await the key release of data this week for the next direction in GBP/USD. Last week’s GDP report already supported the Bank of England’s decision to keep its interest rates steady in September. If we see weaker labor and wage data which is forecasted, then concerns over a second-round inflation or a higher Bank of England interest rate may ease.