Is a Hawkish Bank of England Driving the British Pound Higher?
British pound at eight-month high
The British pound (GBB) closed for the week at 1.310, appreciating by 1.6% against the US dollar (USDU). The British pound (FXB) posted a year-to-date high of 1.312 on Friday after weak US data came out. Mixed messages from the Bank of England (or BOE) also added to the positive tone of the currency. Despite the negative economic data in the last two months, BOE monetary policy committee member McCafferty argued that the BOE should consider tapering its bond-buying program. He has been a hawkish voting member and his view added to the British pound’s positivity.
Economic data from the UK gave some hope after disappointing data in the last two months. The unemployment rate fell to 4.5%, and the average earnings index rose 1.8%.
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Short positions continue to fall
As per the latest Commitment of Traders (or COT) report released on July 14 by the Chicago Futures Trading Commission (or CFTC), currency market speculators have added 6,324 long positions on the British pound with the total net positions moving to -24,138.
Week ahead for the pound
British financial markets (BWX) will be looking forward to the all-important retail sales on Thursday and the CPI inflation data on Tuesday. Expectations for the data remain positive after an uptick in the leading indicators. It’s likely that the British pound could rise against the US dollar (UUP) backed by solid data this week. The background Brexit negotiations will continue but are unlikely to have any major impact as long as the economic data continues to improve.
In the next part of this series, we’ll talk about what to expect from the Bank of Japan this week.