GBP has posted gains for a third straight day as the pound has moved higher on Thursday. In North American trade, GBP/USD is up 0.47%, trading at 1.2980. Earlier in the day, the pound punched above the 1.30 line, which had held in resistance since May 25. On the release front, British Net Lending to Individuals jumped to GBP 5.3 billion, well above the forecast of GBP 4.0 billion. In the US, Final GDP came in at 1.4%, above the forecast of 1.2%. Unemployment claims rose to 144 thousand, higher than the forecast of 141 thousand. We could see some movement from the pound on Friday, as the UK releases Current Account and Final GDP. The US will publish UoM Consumer Sentiment.
The pound has jumped 1.9% this week, buoyed by comments from BoE Governor Mark Carney at the ECB forum of central bankers. Carney said that the BoE would have to consider removing monetary stimulus, and the markets jumped on his comments as a possible sign that he was not adamantly opposed to rate hikes in the near future. BoE policymakers have waged a public debate about rate policy, with Carney stating last week that he was opposed to hikes, only to be contradicted by MPC member Ande Haldane, who said he had been close to voting in favor of a rate hike at the June rate meeting. The vote at the meeting was 5-3 in favor of maintaining rates, surprising the markets, which had predicted a 7-1 vote to keep rates at current levels. Although there are renewed fears that Brexit will take a toll on the British economy, inflation is running close to 3%, well above the BoE’s target of 2 percent. A rate increase would help lower inflation, but Carney, who has voiced concerns about Brexit’s negative ramifications since the vote last June, has been solidly against a rate increase.
In the UK, more and more consumers are taking out loans, and that has the Bank of England worried. With wage growth at weak levels and the pound at low levels, the British consumers have seen their purchasing power reduced, with many resorting to unsecured loans. This has led to calls for the BoE to respond with a rate hike in September, in order to curb borrowing levels. Proponent of a rate hike also point to high inflation, which is running at a 3% clip. The BoE cut rates to 0.25% in August 2016, in response to the stunning Brexit vote, which the BoE warned would take a heavy toll on the economy. Those dire warnings are yet to materialize, and Carney faced heavy criticism for is overly-negative forecast. With more BoE policymakers calling for a rate hike, Carney may have to acquiesce and press the rate trigger before the end of the year.
