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GBP/USD tumbles to $1.38 as BoE more dovish than expected

currency-newsGBP/USD tumbles to $1.38 as BoE more dovish than expected
The pound slumped on Thursday as GBP investors were left disappointed by the lack of a hawkish tilt from the Bank of England (BoE).

Sterling remains subdued so far this morning, with GBP/EUR dipping to €1.1695 and GBP/USD muted at $1.3915. GBP/CAD is down at C$1.7122, while GBP/AUD and GBP/NZD retreat to AU$1.8320 and NZ$1.9653 respectively.

Looking ahead, will the latest PCE price index confirm a jump in US inflation last month and boost the US dollar today?
 

What’s been happening?

The pound was met by an aggressive selloff yesterday after the BoE struck a more dovish tone than expected in its June policy statement.

While the BoE’s decision to leave its monetary policy unchanged this month didn’t come as a surprise, GBP investors who had been hoping for a more hawkish shift from the bank -in light of recent remarks from policymakers and a surge in domestic inflation- were left disappointed.

In fact, many analysts suggested the BoE’s latest forward guidance pushes back expectations for the next rate hike from the bank from 2022 to 2023.

The euro, meanwhile got off to a strong start on Thursday on the back of a stronger-than-expected uptick in German business sentiment. However, these gains started to fade in the wake of German chancellor Angela Merkel’s, warning that Europe is ‘on thin ice’ in its battle against the coronavirus due to the spread of the Delta variant.

At the same time, the US dollar was mostly subdued yesterday as the latest US durable goods orders release and initial jobless claims both printed below expectations.
 

What’s coming up?

Top of the agenda today will be the publication of the latest PCE price index in the US.

As the Federal Reserve’s preferred indicator for inflation, the PCE price index could provide a boost for the US dollar this afternoon, if its points to building inflationary pressure in the US.

The publication of the Confederation of British Industry’s (CBI) latest distributive trade index could provide some support for the pound this morning, if it reports to another month of strong retail activity in June.

In the absence of any notable Eurozone data releases, the euro could find itself vulnerable to coronavirus headlines today as Europe braces for a surge in cases of the Delta variant.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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