The British pound is lower on Wednesday, as the currency has been under pressure for most of the week. In the North American session, GBP/USD is trading at 1.3883, down 0.48% on the day. On the release front, British Halifax HPI declined 0.6%, below the estimate of +0.2%. This marked the first decline since June. There are no US releases on the schedule. On Thursday, the US releases unemployment claims.
It’s been a rough week for the pound, which started the week with losses and has shed 1.6%. The US dollar has posted gains against the pound and the other majors, after a massive sell-off on global stock markets on Monday. The sell-off was precipitated by strong US nonfarm payrolls and wage growth reports on Friday. This triggered concerns that higher inflation was on the way, which in turn would result in more rate hikes this year. Higher interest rates make the dollar more attractive for investors, at the expense of other currencies. Although global stock markets have settled down, concerns remain that inflation could move higher after years of being AWOL across industrialized countries, and could again spook the markets.
The spotlight will be on the Bank of England on Thursday, as the bank sets the benchmark rate and releases the Inflation Report. The markets will be also be keeping a close eye on the Inflation Letter, which Governor Mark Carney is required to write due to inflation being more than 1% off the target of 2.0% (CPI is currently running at a 3.1% clip). Carney will address what the Bank is doing to lower inflation, and higher interest rates is one remedy, but one that Carney will hope to avoid, given the economic uncertainty surrounding Brexit. The BoE is expected to hold current rates at 0.50%, and all nine members of the Monetary Policy Committee are expected to support this move. If some members vote in favor of a rate hike, the pound could respond with gains.
