The GBP/USD saw a slight rebound on Thursday, despite cautious global trading and continued market volatility. The rate rose 0.4% to $1.2261 after initially falling. The move was influenced by the USD’s strength against riskier currencies, which was tempered by dovish comments from Federal Reserve officials.
Policymakers such as Lorie Logan have advocated a data-driven approach to monetary policy and the maintenance of steady interest rates. However, October data showing a slowdown in US employment and manufacturing has suggested that the broader economy is beginning to feel the effects of previous rate hikes. This has slightly undermined the USD.
The GBP has been volatile due to a lack of significant UK data and ongoing economic concerns. These concerns were heightened by Bank of England (BoE) Governor Andrew Bailey’s warning of potential economic fragmentation, leaving the Pound in a vulnerable position in the absence of positive UK data.
The GBP/EUR rate climbed 0.3% to €1.1501. This occurred despite the lack of new data and the BoE’s hawkish stance versus the European Central Bank‘s (ECB) unchanged interest rates. Three BoE policymakers supported a rate hike last week, while the ECB is signaling no further hikes.
The UK’s high inflation rate of 6.7%, higher than the Eurozone’s 2.9%, points to a possible BoE intervention; however, Huw Pill expects inflation to fall without rate hikes. The EUR weakened against the GBP as investors await Christine Lagarde’s speech amid a 0.3% drop in Eurozone retail sales and a negative growth outlook from Vice President Luis de Guindos.
Key events ahead include Lagarde’s speech and tomorrow’s UK GDP report, which is expected to show a 0.1% contraction due to higher interest rates.
