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Pound sterling: selling off after US rate hike fears return

British pound daily update


British pound daily update

The British pound is mostly lower today, after selling off yesterday. Looking at pound sterling against its peers, it is currently lower against all major currencies except the euro. Yesterday was a fairly eventful day for the currency, following mediocre employment data and the Bank of England's testimony to the House of Lords. Looking at wages, wage growth was slightly ahead of expectations but this was offset by a lower-than-expeced number of new jobs. Turning to the testimony, BoE Chief Economist Andy Haldane suggested that interest rates may need to rise faster than expectations in order to keep inflation at bay. Specifically, both UK demand and inflation risks were pointed to the upside. While the testimony helped the pound initially, the currency eventually weakened following US FOMC minutes. The minutes suggested an upgraded outlook for the US economy, raising the risk of more rate hikes this year. Alongside most other currencies, the pound sold off relative to the US dollar yesterday and remains weaker today. Turning to politics, Theresa May will host both factions of the Conservative Party at her country residence later today in order to work out a deal. As we wrote in  yesterday's daily update, 62 pro-Brexit members of the Conservative Party are demanding a quick and clean exit from the European Union. May is expected to lay out her plans for trade negotiations over the next few weeks. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.    

GBP/USD is currently above 1.3880. EUR/GBP is up, with the exchange rate above 0.8830. The pound is down against the Australian dollar and against the Canadian dollar. GBP/AUD is currently above 1.7790, while GBP/CAD is above 1.760.

Looking at UK economic data this week, we’ll get UK employment data as well as UK inflation report hearings. UK 3-month wage growth (2.5% vs. 2.4% expected) beat expectations but employment (88k vs. 173k expected) fell below estimates. Bank of England Governor Mark Carney provided an upbeat forecast during inflation report hearings. Later today, we’ll get Q4 GDP growth figures. Last week, the consumer price index was slightly ahead of expectations.


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