GBP USD Exchange Rate Hits More Than Two-Week High

GBP USD Exchange Rate Set for First Weekly Gain in Four 

The pound burst out the blocks against the dollar on Monday, accelerating to within touching distance of the 1.26 resistance level – a more than two-week high against a broadly weaker US currency.

The UK currency built on last week’s rally which was prompted by robust labour numbers and better than expected British retail sales data – reinforcing expectations that the Bank of England (BoE) will persist with interest rate hikes to cool red-hot inflation.

However, expectations were dampened when inflation touched a 40-year high, stoking fears over how far the BoE can lift rates without triggering an economic downturn.

The UK central bank has hiked interest rates four times since December – more than any other major central bank.

Dollar remains broadly weaker

Broad dollar weakness – which extended its recent slide on Monday – continued to support the pound at the start of the week, as investors took flight from the safe-haven US currency on hopes that easing lockdowns in China could stimulate global growth.

The dollar has been on an upward trajectory this year, but with expectations for further Federal Reserve rate rises priced into the market, some analysts believe further gains may be restricted.

There was some good news for the dollar on Monday after data compiled by the Federal Reserve Bank of Chicago showed the domestic economy continued to expand in April, picking up pace compared with March.

The Chicago Fed National Activity Index jumped to 0.47 in April from a revised 0.36 the previous month, almost parallel with the 0.50 consensus forecast. April’s encouraging print indicates that economic growth was above its historical trend.

Looking ahead

BoE governor Andrew Bailey makes a speech on Monday afternoon, during which he is expected to elaborate on future policy tightening from the central bank, even as evidence continues to suggest that the domestic economy is in distress amid a deepening cost-of-living crisis.

Key data on the UK’s manufacturing and services industries for May is slated for publication on Tuesday.

President and CEO of the Federal Reserve Bank of Atlanta, Raphael Bostic has a speaking engagement scheduled on Monday. Speaking earlier this month, Bostic said he thinks rate-setters should continue raising borrowing costs by half-point increments rather than doing anything more aggressive.

US manufacturing and services PMIs also hit the headlines on Tuesday ahead of a speech from Fed Chair Jerome Powell. This is quickly followed by new home sales for April.

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