The pound softened against the dollar on Thursday after Federal Reserve policy meeting minutes buoyed the US currency. GBP USD slid below the 1.20 level for the first time since 26 July. Runaway UK inflation intensified investor worries that higher interest could weaken the economy.
The latest inflation print, published on Wednesday, came in above 10%, piling pressure on the Bank of England (BoE) to cool prices and intensifying fears of a sharp economic slowdown.
Investors are pricing in a 50 basis point rate hike at the UK central bank’s September meeting, with the bank rate likely to peak at 3.75% in May 2023, which is projected to peak in March.
The Conservative Party leadership race to elect the next Prime Minister continues to drag on the pound, with frontrunner Liz Truss’ spending plans and desire to examine the role of financial regulators in focus.
Dollar supported by Fed inflation outlook
The dollar was supported on Thursday after minutes from the Fed’s July 26-27 policy meeting signalled that US interest rates will stay elevated to tame inflation.
“Participants agreed that there was little evidence to date that inflation pressures were subsiding,” the minutes said.
They pointed to an eventual slowdown in the pace of policy tightening, pouring cold water on expectations of a U-turn to cuts in 2023 that investors had recently priced into markets.
The number of Americans filing initial claims for jobless benefits fell last week, and data for the previous period was revised lower as the US labour market continued to show strength.
The slight decline to 250,000 ensured initial jobless claims withstood expectations of a rise to 265,000, which would have marked the highest level since January.
The Philadelphia Fed manufacturing survey – a gauge of factory activity in the region –accelerated in August to its fastest pace since April.
The monthly manufacturing index jumped to 6.2 in August from -12.3 in July, exceeding economists’ consensus for a reading of -5.
Looking ahead
The GfK consumer confidence print for August – which remained at a 48-year low in July – is slated for release from the UK economy overnight on Thursday.
UK retail sales data wraps things up on the economic data front on Friday, with markets bracing for another sharp decline in consumer spending amid the cost-of-living crisis. Retail sales dropped 5.8% year-over-year in June, with the forecast for July standing at -3.3%.
To get in touch and receive further insight into the factors that could impact your overseas payments, click the button below and complete the form on the Lumon website.
