GBP/USD has posted gains on Thursday, erasing most of the losses which marked the Wednesday session. In North American trade, GBP/USD is trading at 1.2830. There are no British economic releases on the schedule, although the markets are keeping an eye on BoE Governor Mark Carney, who will speak at two events in Washington. In the US, manufacturing and employment numbers were soft, as the Philly Fed Manufacturing Index and unemployment claims missed their estimates. Later in the day, US Treasury Secretary Robert Mnuchin will deliver remarks in Washington. On Friday, the UK releases Retail Sales, which is expected to decline 0.3%. The US will publish Existing Home Sales, with a forecast of 5.61 million.
It’s been a great week for the pound, as GBP/USD has jumped 2.4 percent. On Tuesday, the currency punched above 1.29, its highest level since October 2016, on the news that Prime Minister May had called a snap national election on June 8. The announcement caught the markets by surprise, as the government’s term runs until 2020 and May had previously said that she would not call early elections. May’s Conservative Party currently has 330 seats in Parliament, which is a slim majority of just 17 seats. If, as current opinion polls predict, the government wins a larger majority, this would likely propel the pound to higher levels.
With the US economy continuing to perform well, the markets are expecting the Fed to continue to gradually raise rates in 2017. The Fed has broadly hinted that it plans two more rate hikes this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March are likely to make the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. The odds of a June hike have slipped to 46% according to the CME Group, down sharply from 65% in early April.
