Sat, Jan 28, 2023 @ 19:31 GMT
HomeContributorsFundamental AnalysisPound Rally Continues, Pushes to 2-Week High

Pound Rally Continues, Pushes to 2-Week High

The British pound is on a roll and has recorded gains for a fifth straight day. In the Thursday session, GBP/USD is trading at 1.4243, up 0.45% on the day. The pound has enjoyed a strong week, gaining 1 percent. On the release front, the Bank of England released its quarterly credit conditions survey. In the US, unemployment claims dropped to 233 thousand, very close to the estimate of 231 thousand. On Friday, the US releases the UoM Consumer Sentiment report.

The Federal Reserve minutes had a generally hawkish tone, reflective of a solid US economy. All of the Fed policymakers indicated that the US economy would continue to improve and that inflation would rise in the next few months. At the March meeting, the Fed unanimously voted to raise rates by a quarter-point, bringing the benchmark rate to a range between 1.50% and 1.75%. The Fed projection for rate policy in 2018 remains at three hikes, although there is speculation that the Fed could revise the forecast to four rate hikes. Last week, Fed Chair Jerome Powell said that the Fed would likely continue to raise rates in order to keep a lid on inflation, but added that the rate moves would be gradual. A new headache for the Fed is the escalating trade battle between the US and China, which could hurt the economy and raise consumer prices. As for the next two rate meetings, the markets expect Powell & Co. to sit tight in May and raise rates at the June meeting.

The plucky pound continues to head higher and has surged a sizzling 5.4% since the start of the year. The stronger currency has helped ease inflation concerns to a degree, although the inflation rate is still close to 3%, well above the BoE target of 2%. As for rate policy, bank policymakers do not meet for a rate meeting until May, but there appears to be strong support for a quarter-point rate increase. On Tuesday, a key BoE member, Ian McCafferty, urged the bank not to delay in raising rates, and other policymakers support this view. One strong reason in favor of a rate hike is that inflation remains around 3%, well above the 2% target. However, the lukewarm British economy and the dark cloud of Brexit are key reasons why Governor Mark Carney has not been enthusiastic about raising rates. As things currently stand, a quarter-point rate hike seems likely at the May meeting.

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