GBP/USD remains steady while focus shifts to the Bank of England decision

Daily Currency Update

The pound extended its upward trajectory with significant gains against the US dollar. Sterling reached a six-month high on Friday and was supported by the likelihood that the Bank of England (BoE) could hike interest rates further following recent UK economic data. The pound is benefitting from a number of factors. Firstly, strong UK employment figures have helped support a good reaction in the bond market, as well as investors seeking further interest rate increases from the BoE.

Furthermore the US Federal Reserve leaving rates unchanged for June caused a shock to the market and US dollar weakness extended into Friday, allowing the pound to capitalise. Data from the US suggested that inflation slowed. The Consumer Price Index (CPI) increased just 0.1%  for the month and 4% from a year ago, the latter being the lowest level in roughly two years. Excluding food and energy, core CPI rose 0.4% and 5.3% allowing the US Federal Reserve to assess the upcoming data and remain cautious of additional tightening to monetary policy.

Ending the week, the pound capped its weekly gains as the US dollar was supported by the steady rise in US Treasury Bond Yields, combined with recent comments from Federal Reserve Policy makers who expressed their stance on the US Federal Reserve’s recent decision. Thomas Barkin, who is President of the Federal Reserve Bank of Richmond, announced that he’s comfortable in doing more, pointing towards further interest rate hikes if needed in the future. Comments from  Fed Governor, Christopher Waller, added that slow progress on inflation will probably require some more tightening. The USD Dollar Index (DXY) was up on the close of play Friday at 102.277.