GBP/USD has lost ground in the Thursday session. In North American trade, GBP/USD is trading at 1.2881. On the release front, it’s been a very busy day. The Bank of England maintained the benchmark rate at 0.25%, but the minutes of the May policy meeting were pessimistic. There was more bad news as Manufacturing Production declined 0.6%, worse than the forecast of -0.2%. US numbers were strong, as PPI improved to 0.5%, and unemployment claims ticked lower to 236 thousand. Both indicators beat their estimates.
As expected, the BoE made no changes to interest rates or its asset-purchase scheme. However, the BoE stated in its minutes that it expected living standards to drop, as it downgraded its forecast for average earning growth to 2%, down from 3% in February. On the inflation front, the BoE raised its projection for inflation in Q1 to 2.7%, compared to 2.4% in February. The Bank added that if inflation is higher than predicted, it might have to respond by raising interest rates. The minutes added that these forecasts were based on a "smooth" Brexit (which is by no means guaranteed, especially with the bad blood between the EU and Prime Minister Theresa May). Predictably, the gloomy message from the BoE has pushed the British pound lower in Thursday trade. A weak manufacturing production report is also weighing on the pound, and if upcoming data also misses expectations, the pound could continue to lose ground.
Washington is in the grips of a major political crisis (some analysts are even claiming a constitutional crisis), following Trump’s firing of FBI director James Comey on Tuesday. Comey, who has been conducting an investigation into possible collusion between Trump and Russia during the presidential campaign, clearly has been a thorn in Trump’s side. The White House has claimed that it fired Comey over his handling of an email scandal involving Hillary Clinton, but the move has been roundly condemned by the Democrats, and some key Republicans have also voiced opposition as well. The firestorm could heat up further, with calls in Congress to appoint an independent investigator into Trump’s connections with Russia. Has Trump gone one step to far? This latest controversy shows no signs of fading away anytime soon, and could delay Trump agenda of tax reform and increased fiscal spending.
