Sat, Oct 23, 2021 @ 10:13 GMT
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Pound Dips Despite Sharp Retail Sales

The British pound has headed lower in the Thursday session. In North American trade, GBP/USD is trading at 1.4091, down 0.36% on the day. On the release front, British Retail Sales impressed with a strong gain of 0.8%, beating the estimate of 0.4%. As expected, the Bank of England maintained the benchmark rate at 0.50%. In the US, unemployment claims rose to 229 thousand, higher than the forecast of 225 thousand. On Friday, the US releases durable goods and housing reports.

The Bank of England kept interest rates at 0.50% at its policy meeting on Wednesday. The markets were expecting this, with investors anticipating a rate move at the May moving. This sentiment has gained traction, following the release of the votes cast by MPC members. The markets had expected a unanimous decision to maintain rates at 0.50%, but two of the nine members voted in favor of immediately raising rates. The language of policymakers has become increasingly hawkish, and the MPC votes is another signal that there is a strong likelihood that the BoE will press the rate trigger come May. Earlier in the week, CPI, the primary gauge of consumer inflation, dropped to 2.7% in February. This is good news for consumers, who have seen their purchasing power steadily deteriorate, with inflation levels of around 3% in recent months.

On Wednesday, the Federal Reserve raised rates for the first time this year, in a move that was widely expected. The rate increase of a quarter-point brings the benchmark rate to a range between 1.50% and 1.75%. The markets were looking for any clues with regard to the pace of rate hikes in 2018 – currently the Fed is projecting three hikes, but a robust US economy could push the Fed to press the rate trigger four times. The rate statement did not directly address the issue, but there was a refreshing lack of Fedspeak from policymakers, who said that “the economic outlook has strengthened in recent months”. This phrase has not been used in previous rate statements, and if Fed policymakers reiterate positive sentiment towards the economy, could push the US dollar to higher ground.

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