- GBP/USD pressured in late New York trade, trading back to flat for the day.
- UK inflation and rates are in focus following the Office for National Statistics showing price pressures everywhere.
GBP/USD is flat in late New York trade, under pressure however, and falling away from 1.2467 highs as profit taking kicks in. GBP/USD has traveled between a low of 1.2404 and a high of 1.2467 so far.
Data on Thursday revealed that the United Kingdom´s inflation is far more persistent and the highest in Western Europe. Headline inflation dropped to 10.1% in March from February's 10.4%. However, this was above expectations for the forecasted drop to 9.8%. The Office for National Statistics showed price pressures all over and has raised the prospect of the Bank of England having to raise rates more than previously expected.
´´The market reacted by repricing peak rates by 30bp from where they were at the end of last week, now suggesting we will get 3 more 25bp hikes between now and September,´´ analysts at Societe Generale said.
´´That matches the hikes expected from the ECB, and contrasts with the single 25bp hike that is priced-in for the Fed (before being reversed by the end of the year). GBP/USD has been tracking rate differentials closely since November (after the chaos of the previous weeks).´´
However, there is a concern over the impact of high prices on households and businesses which is stalling the bid in the Pound Sterling. For instance, real wages in Britain, earnings adjusted for inflation, recently showed one of the biggest drops on record in the three months to February, with a fall of 4.1% year on year. Nevertheless, money markets are pricing in rates peaking at around 5% in November this year vs. last month's expectation of around 4.00%.
´´I struggle with the idea that the UK will have higher rates than the US by the end of this year,´´ Kit Juckes, an economist at Societe Generale said.
´´The idea that the MPC will act three more times before pausing seems implausible even if they are worried that they have done too little so far. And if there is a pause, then a US-led slowdown will probably prevent the hikes re-starting (if there is no US slowdown, the Fed won’t be easing),´´ Juckes argued, adding:
´´The repricing of UK supports Sterling as long as rates, and not growth, drive FX, but I fear the positive impact of the rates outlook for GBP/USD will fade long before.´´
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD appreciates as US Dollar remains subdued after a softer inflation report
The Australian Dollar steadies following two days of gains on Monday as the US Dollar remains subdued following the Personal Consumption Expenditures Price Index data from the United States released on Friday.
USD/JPY consolidates around 156.50 area; bullish bias remains
USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY.
Gold downside bias remains intact while below $2,645
Gold price is looking to extend its recovery from monthly lows into a third day on Monday as buyers hold their grip above the $2,600 mark. However, the further upside appears elusive amid a broad US Dollar bounce and a pause in the decline of US Treasury bond yields.
Week ahead: No festive cheer for the markets after hawkish Fed
US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.