GBP/USD has pushed to a two-month high above 1.35, lifted by reports over the UK’s next Chancellor and a softer Federal Reserve outlook. Cooler US inflation data ruled out a July Fed move, while higher oil prices firm up bets on a Bank of England rate hike.
The pound has climbed to a two-month high above 1.35 against the dollar as investors scale back Federal Reserve rate hike expectations and welcome reports over the UK’s next Chancellor.
Chancellor reports and UK growth steady the pound
Reports that Home Secretary Shabana Mahmood will be appointed Chancellor by incoming Prime Minister Andy Burnham have reassured the market, easing worries that Burnham could pick a more fiscally expansionary candidate such as Ed Miliband. UK government gilt yields are edging lower on the news.
UK GDP data added support. The economy rose 0.1% month-on-month in May, beating expectations for no growth after April’s 0.1% decline. The services sector, which accounts for around 80% of the economy, expanded 0.3%, yet construction output fell 0.8% and industrial production declined 0.5%, suggesting the recovery remains uneven.
Oil, the BoE and a softer dollar
Higher oil prices are reinforcing expectations that the Bank of England will tighten policy later this year. Markets are now fully pricing in a 25 basis point rate hike in November, with another increase expected in March 2027.
The dollar, meanwhile, has fallen to a monthly low after softer-than-expected CPI and PPI data this week, following last week’s weaker labour market report. Together, the readings prompted investors to rule out a July rate hike from the Fed, and markets now price around a 70% probability of a September move.
Where GBP/USD goes next
Downside in the dollar could prove limited, however. Renewed US-Iran hostilities could support safe-haven demand for the greenback, while rising oil prices risk reigniting inflation concerns and lifting Treasury yields. Attention now turns to the US retail sales report, expected to show sales rose 0.2% in June after 0.9% growth previously.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
