The British pound just doesn’t look at the British economy. BOE dovishness and now some fresh USD strength in the new week and the end of the month weigh on cable.
The pair loses the round number of 1.50. False break or is 1.48 next? The moves may also be related to end of month flows.
So far, Cable slipped only to 1.4998 before bouncing higher. This might be some stop hunting rather than the real thing, but an initial move may be followed by a second thrust.
The UK economy is doing well, with unemployment around pre-crisis levels and also wages showing really good data: a 3% y/y rise. Recent retail sales figures were OK.
However, the Bank of England expressed worries about inflation: we all know that headline CPI is low due to energy prices, but core inflation actually rose last time. Yet like the ECB, the BOE has lower longer-term trajectories.
The BOE is expected to raise rates after the Fed does, but these latest murmurings hurt sterling, pushing a rat hike further into the future.
In the meantime, the chances of a Fed move have increased, strengthening the dollar across the board.
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