The British pound is down sharply on Thursday, as the US dollar has recorded strong gains against the major currencies. In the European session, GBP/USD is trading at 1.1930, down 0.80%.
In the UK, the economic calendar is unusually quiet this week, with no tier-1 releases. This put BoE speak in the spotlight, with the highlight being a speech from BoE Governor Bailey on Wednesday. Bailey didn’t offer much, saying that “nothing is decided” with regard to further rate hikes and that incoming data, particularly inflation, would determine the BoE’s rate decisions. Still, there was a slight hint that more rate hikes are coming, with Bailey warning that “if we do too little with interest rates now, we will only have to do more later on”. The BoE’s battle with inflation is far from over, as inflation is at a red-hot 10.1%, despite the Bank’s aggressive tightening which has raised the cash rate to 4.25%. The markets are expecting more tightening and have fully priced in 0.25% hikes at the March 23rd and May 11th meetings.
In the US unemployment claims remained below the 200,000 level, as the labour market remains robust. Unemployment claims dipped lower to 190,000, down from 192,000 and below the estimate of 195,000. Claims may have bottomed out and could start to rise in the next few months, as the Fed’s rate-tightening makes will eventually weigh on the labour market.
The Federal Reserve remains hawkish with its message that higher rates are on the way. Fed member Bostic reiterated this stance, saying that the terminal rate would be between 5% and 5.25% and have to remain at that level well into 2024. The markets have priced in a terminal rate of 5.50%, but with the disinflation process appearing to sputter, there are voices projecting a terminal rate as high as 6%.
- GBP/USD is testing support at 1.2006. Below, there is support at 1.1864
- There is resistance at 1.2082 and 1.2224
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