Home Daily Commentaries Pound strengthens against the US Dollar

Pound strengthens against the US Dollar

Daily Currency Update

The Pound is consolidating mid 1.27 early this morning against the USD, ahead of the Bank of England’s (BoE) interest rate decision today.

While the USD index lacks momentum following Fed Chair Jerome Powell’s testimony before the House Financial Services Committee yesterday, suggesting cautious remarks that it could raise rates at a more moderate pace. The BoE has seen to be on track to deliver its 13th straight rate hike this Thursday as it tries to quell stubborn and sticky inflation which has remained at high levels. The UK’s inflation has softened from double digits and is still one of the highest amongst major advanced economies. The Pound is likely to experience intense volatility leading up to the announcement and the main focus will be the language in the BoE monetary policy statement for direction.

BoE Governor Andrew Bailey spoke following the recent data shown by the Office of National Statistics which pointed out that the UK ILO Unemployment Rate dropped to 3.8% in the quarter to April from the 3.9% recorded in the three months to March. Andrew Bailey said, inflation was taking a lot longer than expected to come down and the labor market was very tight. While the number of people claiming jobless benefits had dropped by 13.6k, compared to the anticipated number of 9.6K. UK’s average earnings excluding bonuses came in at 7.2% in April, against the prior reading of 6.8% and the expected 6.9%. April’s data release does include a 9.7% rise in the minimum wage.

Key Movers

The Bank of England is set to announce its interest rate decision at 11:00 am, followed by the minutes meeting. The question is, how could this affect the Pound against the US Dollar? While markets have been expecting incremental increases of 25bps throughout the course of the year, if the BoE announces a 25bps to a 15-year high, we could see Sterling’s strength and gain momentum in an upward trend toward 1.28. Whether the BoE announces rates remain unchanged then the pound comes under selling pressure if the central bank portrays a cautious tone.

Expected Ranges

  • GBP/USD: 1.2743 - 1.2771 ▲
  • GBP/EUR: 1.1604 - 1.1620 ▲
  • GBP/AUD: 1.0980 - 1.0995 ▲
  • EUR/USD: 1.8758 - 1.8891 ▲