The British pound has posted losses at the start of the week, after posting strong gains in Thursday and Friday sessions. In North American trade, GBP/USD is trading at 1.3485, down 0.72% on the day. On the release front, British Rightmove HPI declined 1.2%, its second decline in three months. Bank of England Governor Mark Carney will deliver a lecture at the International Monetary Fund in Washington, D.C. In the US, there are no major releases on the schedule.
The pound enjoyed an excellent week, as GBP/USD jumped 3.0% percent. The pound climbed on Thursday and Friday, following surprisingly hawkish minutes from the BoE’s policy meeting. As expected, the BoE opted to hold interest rates at 0.25%, where they have been pegged since August 2016. There have been calls for the BoE to raise rates in order to fend off high inflation levels, but most policymakers are of the opinion that current economic conditions do not warrant a rate hike. However, the minutes were surprisingly hawkish, stating that if current economic conditions continue, then "withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target". The strong guidance from the BoE was unusual, and sets the stage for a likely rate hike in November, when the BoE holds its next policy meeting. Investors reacted positively to the hawkish message from the bank, sending the pound sharply higher, with the pound breaking the 1.36 level on Thursday, for the first time since June 2016.
US consumer spending has been a sore spot in a generally strong economy, and there was more disappointing news on Friday, as August retail sales reports missed expectations. Core Retail Sales slowed to 0.2%, missing the forecast of 0.5%. Retail Sales was even worse, posting a decline of 0.2%, compared to the estimate of +0.1%. Much of the slowdown in the August numbers are attributable to lower automobile sales, which have been slowing in recent months, and was likely made worse by Hurricane Harvey. These numbers underscore continuing weakness in consumer spending, despite a strong labor market. The Federal Reserve remains concerned about weak consumer spending, a key driver of economic growth, and could make reference to the lack of spending in its rate statement, which will be released later this week.
