The GBP USD rate was choppy on Monday as it charted a course through the 1.37 range.
The pound ticked higher despite analysts raising concerns about the UK’s economic recovery and inflation, which could restrict its gains from Bank of England (BoE) interest rate hike expectations.
Investors continue to place bets on a rate hike by the central bank at its meeting on 4 November, causing it to be priced into markets – despite last week’s data being mixed: business activity surveys showed unexpected economic improvement in October, but retail sales figures were worse than expected.
With no material stats due out of the UK on Monday, investor attention was focused on a speech by BoE Monetary Policy Committee member Silvana Tenreyro – who recently pushed back against rate rises.
In a speech to the Centre for Economic Policy Research, BoE interest rate-setter Tenreyro said she needs time to think about rate hikes.
“Uncertainty over the effects of the furlough scheme should be resolved over the coming months, which should help paint a clearer picture of the position of the labour market,”
Approximately 1 million members of the UK workforce were probably still on the government’s job-saving furlough scheme when it expired at the end of last month – according to estimates – increasing the risk of a surge in unemployment and under-employment.
Investors reassess rate hike prospects
The dollar held its own on Monday as investors dusted off their binoculars and looked to tighter monetary policy in the US even as they bet on potential rate hikes elsewhere – notably the UK.
This represented a rate hike U-turn in the US after Federal Reserve Chair Jerome Powell said on Friday that it’s not yet time to begin raising interest rates – causing the dollar to soften.
It wasn’t all good news for the dollar at the start of the week. The Chicago Fed National Activity Index, released by the Federal Reserve Bank of Chicago, fell to -0.13 in September from 0.05 in – showing that overall economic activity grew at a slower pace last month than August.
Economic data is on tap in the US this week. A clutch of influential data sets are slated for release today: Housing Price Index, S&P/Case-Shiller Home Price Indices, Richmond Fed Manufacturing Index, New Home Sales, and Consumer Confidence.
In contrast, economic data is thin on the ground from the UK economy this week. The next data scheduled for publication is the British Retail Consortium (BRC) Shop Price Index this evening.
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