The pound steadied itself against the dollar on Wednesday after four consecutive days of losses, rising above 1.30 and moving away from last week’s lows – not seen since November 2020 – in the process.
The UK currency managed to snap its losing streak as investor attention turned to potential policy clues from Bank of England (BoE) officials this week – including Governor Andrew Bailey.
Data published last week showed British consumer price inflation rose to 7% in March – a thirty-year high. Investors are eager to learn how the BoE views the current rate landscape after the central bank recently softened its language on policy tightening.
The International Monetary Fund (IMF) provided a pessimistic view of the British economy on Tuesday, forecasting slower economic growth and more persistent inflation than other major economies in 2023.
IMF projections for domestic GDP growth this year were slashed to 3.7% from January’s forecast of 4.7%, while the growth rate for next year was almost halved to 1.2% from 2.3%.
Fed’s Evans projects year-end rates
Chicago Federal Reserve Bank (Fed) President Charles Evans on Tuesday said the US central bank could increase its policy target range to 2.25%-2.5% by the end of 2022, before taking stock of the health of the economy – but if inflation remains elevated it will probably need to hike rates further.
Speaking at the Economic Club of New York, Evans said: “Probably we are going beyond neutral – I mean, that’s my expectation,” Most of his contemporaries at the Fed estimate neutral to be somewhere between 2.25% and 2.5%.
The Federal Open Market Committee (FOMC) meet again in May when it’s widely expected to hike borrowing costs by a half percentage point, followed by the same course of action in June, before potentially settling into quarter-point hikes for the rest of the year – a pace that would align with Evan’s outlook.
Speeches on Thursday by BoE policymaker Catherine Mann and Governor Andrew Bailey are potentially key drivers for the pound and will be watched for clues on the pace of future policy tightening.
The first economic indicator from the UK economy this week arrives overnight on Thursday, with UK consumer confidence forecast to deteriorate.
A speech by Fed chair Jerome Powell on Thursday could indicate how aggressive the central bank intends to be with its policy strategy this year – having hiked rates in March for the first time since 2018.
Two notable data sets are slated for release in the US on Thursday: initial jobless claims and the Philadelphia Fed manufacturing survey.