Pound US Dollar (GBP/USD) Exchange Rate Tumbles as Bank of England Proves Dovish

May 10, 2018 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Tumbles as Bank of England Proves Dovish

BoE Leaves Rates on Hold, Pound US Dollar (GBP/USD) Exchange Rate Falls

‘Super Thursday’ is here, and it hasn’t been kind to Sterling.

The Bank of England (BoE) has announced that they have kept the baseline interest rate on hold, with all members agreeing that ‘any future increases in the bank rate are likely to be at a gradual pace and to a limited extent’.

As predicted, the major concern was the disappointing slide in Q1 GDP growth and below-forecast inflation, with the Monetary Policy Committee (MPC) concerned that the economy might be too fragile to handle a rate rise at this juncture.

The statement did, however, mention that wage growth and domestic cost pressures are firming, but their analysis only pointed to a ‘small margin of excess demand’ emerging by early 2020.

Beyond this, the NIESR GDP estimate was revised down from 0.2% to 0.1%, below forecasts of a rise to 0.3%.

Combined, this news left the Pound floundering whilst investors awaited Mark Carney’s press conference.

Pound US Dollar (GBP/USD) Exchange Rate Trades Lower Ahead of US Inflation Results

Across the pond investors are currently waiting for the US consumer price inflation results, with the GBP/USD exchange rate paring gains in the meantime.

Investors currently expect the US CPI reading to print at 2.5% year-on-year in April, up from the previous period’s score of 2.4%.

The monthly reading is also forecast to climb, this time from -0.1% to 0.3%.

If this rise does indeed occur then it would further cement chances of a US Fed rate hike in June, particularly with the labour market tightening to 3.9% in the past month.

There are some concerns over the US President’s decision to pull out of the Iran deal, but this news had little effect on the overall performance of GBP/USD.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Michigan Sentiment Index on the Horizon

As the week draws to a close market attentions will likely shift to the US import and export price readings for April, as well as the University of Michigan consumer sentiment index for May (both due tomorrow).

The consumer sentiment index is a monthly measure of consumer attitudes on the US business climate, personal finance and spending - with an aim of promoting a better understanding of changes in the national economy.

The May reading is currently expected to remain at highs, despite easing from 98.8 to 98.4.

If this is indeed the case then we could see the ‘Greenback’ hold its lead over the Pound, especially with the BoE’s decision still fresh in mind.

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TAGS: Pound Dollar Forecasts