The British pound was thrown a much-needed lifeline today following an unexpectedly hawkish statement and MPC vote split from the Bank of England. Market expectations over a possible UK interest rate hike this year were boosted after the monetary policy committee voted 6-3 in favor of keeping rates unchanged.
The outlook for sterling remains tilted to the downside, especially when factoring in how Brexit-related uncertainty and political risk may force the Bank of England to delay monetary policy normalization this summer.
King Dollar has appreciated against a basket of major currencies ahead of this afternoon’s estimate of first-quarter GDP growth. Seasonal factors are expected to see GDP growth cool in Q1, but this could have little impact on the Dollar’s mojo. With rising U.S. bond yields and expectations of higher U.S. interest rates heavily supporting the dollar, it is likely to hold its own against most majors.
The British pound's abrupt and aggressive depreciation following disappointing UK inflation data continues to highlight how sensitive the currency is to monetary policy speculation. The UK headline inflation rate unexpectedly dropped to 2.5% in March, which immediately raised doubts over the Bank of England raising interest rates next month. With UK wage growth rising faster than inflation, the squeeze on consumers is slowly coming to an end.
The British pound was unsettled and vulnerable on Thursday after reports showed that Britain remains the world’s slowest growing major economy. The Office for National Statistics confirmed that gross domestic product reached 0.4% in the final quarter of 2017, slowing from growth of 0.5% in Q3.