Can Positive Inflation Turn the Tables for the Pound and Dollar?

British pound still under pressure

The British pound (FXB) depreciated against the US dollar (UUP) in the week ended May 18 as the dollar bounced back with the help of rising US bond yields. The dovish statement from the Bank of England set the stage for the pound’s depreciation for the week ended May 11, while a weak employment and wage report pushed the pound lower in the week ended May 18. The British equity markets (BWX) continued their positive run for an impressive eighth consecutive week with the FTSE 100 index (EWU) rising 0.70% for the week ended May 18 and closing at 7,778.8.

Can Positive Inflation Turn the Tables for the Pound and Dollar?

Speculators decreased bullish positions

According to the latest Commitment of Traders report released on May 18 by the Chicago Futures Trading Commission, speculators have decreased their overall bullish positions on the British pound (GBB) by 3,367 contracts as of Tuesday, May 15. The total outstanding net long contracts decreased from 8,988 to 5,621. Decreased expectations for a rate hike from the Bank of England drove speculators away from long positions in recent weeks.

The week ahead for the British pound

The most important economic data scheduled to be released by the United Kingdom this week is inflation for April. The Bank of England held back from a rate hike in May due to falling inflation, which was previously propped up by a depreciating pound.

The pace of decline in inflation could determine the path for interest rates in the United Kingdom. Other data scheduled to be reported this week include retail sales and the first-quarter GDP estimate, which, if below expectations, could lead to further downward pressure on the British pound.

In the next part of this series, we’ll see why the Japanese yen is continuing to fall.