GBP/USD has weakened -0.1 per cent to US$1.290 today, even though Bank of England (BoE) policymaker Michael Saunders has offered a hawkish commentary on the UK’s interest rate outlook.
Speaking to an audience in Cardiff, Saunders projected that inflation will reach 3 per cent and said: “Our foot no longer needs to be quite so firmly on the accelerator in my view.
“A modest rise in rates would help ensure a sustainable return of inflation to target over time.
“It is fully 10 years since the MPC last tightened monetary policy. Many borrowers have never faced a rate hike.”
Saunders has previously voted for an interest rate hike, so his optimism is unsurprising and therefore has done little to alter the outlook for UK monetary policy.
Strong levels of inflation were also concerning British consumers, although GfK’s latest sentiment survey showed a surprise rise to -10, away from the post-Brexit low of -12.
This could simply be a ‘dead cat bounce’ according to GfK, with markets also unimpressed by the data, considering there is still a long way to go before consumer sentiment is back in positive territory.
Meanwhile, the number of businesses feeling positive about the state of the economy has slumped.
The Lloyds business barometer declined -13 points to record a one-year low net balance of 17 per cent of businesses feeling confident with regards to the economy.
Sentiment amongst consumer-facing businesses was the worst, with the economic outlook index dropping to 5 per cent; the second-lowest reading since 2012.
The US dollar is pressing higher this morning following yesterday’s positive US data and a speech from President Donald Trump regarding his plans for tax reforms.
Although light on new details, Trump’s claim that corporation tax needs to be more than halved from the current rate of 35 per cent to 15 per cent has at least soothed market fears that the President has been too caught up in scandal to give his promised fiscal reforms much thought.
This was Trump’s first speech as President specifically on the topic of tax, with markets also relieved that he managed to remain on topic, after a recent press conference supposedly on infrastructure saw Trump spend much of his time attacking the media.
Yesterday’s domestic data is also helping to support USD higher, although odds of an interest rate hike from the Federal Reserve in December remain well below 50 per cent.
Second-quarter GDP figures showed that the US economy grew at the fastest pace in two years, beating forecasts of 2.7 per cent to clock in at 3 per cent.
GBP/USD losses may be curbed later in the day if the US personal consumption expenditure figures for July show a slowing pace of spending as expected.
The Fed’s preferred measure of inflation, consumption growth is expected to ease back to 1.4 per cent from 1.5 per cent year-on-year and remain at 0.1 per cent month-on-month.