British Pound Outlook Hinges on UK CPI, Employment Report
British Pound Talking Points
GBP/USD appears to be reversing course ahead of the monthly low (1.3731) as Bank of England (BoE) Governor Andrew Bailey insists that the “economy is bouncing back rapidly,” and fresh data prints coming out of the UK are likely to sway the British Pound as the central bank upgrades its economic outlook for the region.
Fundamental Forecast for British Pound: Bullish
GBP/USD is little changed from the start of the month as the BoE Governor Bailey expects the output gap in the UK “to be closed by the end of this year,” with the central bank head going onto say that “it is important not to over-react to temporarily strong growth and inflation” while speaking at the Mansion House.
The comments suggests the BoE is in no rush to switch gears as the UK experiences “a rapid but uneven recovery,” but the update to the Consumer Price Index (CPI) may put pressure on the Monetary Policy Committee (MPC) to draw up an exit strategy the headline reading is projected to increase to 2.2% from 2.1% in May, which would mark the highest reading since November 2018.
At the same time, Employment is anticipated to increase 90K in April after expanding 113K the month prior, and a batch of upbeat data prints may fuel a larger rebound in GBP/USD as it encourages the BoE to gradually adjust the forward guidance for monetary policy. However, a slew of dismal data prints are likely to drag on the British Pound as it allows the BoE to retain the current course for monetary policy, and it remains to be seen if Governor Bailey and Co. will stick to the same script at the next interest rate decision on August 5 as the central bank is slated to update the quarterly Monetary Policy Report (MPR).
With that said, fresh data prints coming out of the UK are likely to sway GBP/USD as the 8 to 1 split within the MPC persists, and an uptick in the CPI along with a further improvement in the labor market may spur a greater rift within the BoE as the central bank adopts an improved outlook for the region.
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
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