British Pound (GBP) Exchange Rate Gains Forecast as Economy Grows Amid Influential Week
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The Pound to US Dollar (GBP/USD) exchange rate has seen highs so far this session of 1.7099, hovering just below the 1.71 US cents mark, whilst also dipping to lows of 1.7066.
However, the strength of Sterling in the currency market could prove to cost the UK economy, with retailers such as Burberry already claiming up to £55 million in forecast losses.
The Bank of England (BoE) decided to keep interest rates on hold in recent weeks, much to the disappointment of some economists who believe the economy could sustain higher rates.
Governor for the Bank of England (BoE), Mark Carney, has made his stance clearer after much ambiguity in recent months. Carney stated: ‘We don’t know exactly when the rate cycle is going to start. It will be driven by the data. We do expect markets to react to that data.’
The Monetary Policy Committee (MPC) has suggested that interest rates will be driven by factors such as wage growth.
An expert in the field, John Bulford, has commented: ‘The absence of any wage-led inflationary pressure, alongside recent signs in the output data that the economy’s expansion may be cooling a touch, should stave off any desire among the MPC to hike interest rates this year.’
Despite last week’s data showing job opportunities increasing in the UK economy, the wage growth figures were disappointing, showing only a 0.3% rise in May, lower than the forecasted 0.5% and lower still than April’s 0.8%.
Reuters have stated: ‘Forty-one of 60 economists who gave a forecast said the MPC would wait until at least January before hiking rates. The other 19 said rates would rise this year, a much higher proportion than in a June poll. None expected no increase before the end of next year.’
This week however will see the publication of Public Finances and Public Sector Net Borrowing data on Tuesday, whilst Wednesday will show the Bank of England’s meeting minutes released which may give a boost to the Pound with Carney’s support. However, BoE officials are expected to have unanimously voted in favour of allowing interest rates to stagnate.
Thursday will see UK Retail Sales data published, whilst Friday will reveal the highly anticipated Gross Domestic Product (GDP) figures which are currently forecast to rise to 3.1%, showing a growth similar to that before the Great Recession.
Ahead of the Bank of England’s meeting minutes on Wednesday, the US Dollar to British Pound exchange rate is currently trading up at 0.5856.