The British pound has posted gains at the start of the week. In Monday’s North American trade, GBP/USD is trading at 1.3121, up 0.35% on the day. On the release front, there are no major releases out of the UK or the US. The UK will release British BRC Retail Sales Monitor, an important consumer spending indicator. On Tuesday, the UK releases Halifax HPI and Fed Chair Janet Yellen will speak at event in Washington.
After taking a bath on Thursday, the British pound has made up some ground. The pound plunged 1.4 percent after the BoE raised rates for the first time since 2007. The rate hike had been expected for weeks, and the markets treated the BoE’s move as a dovish rate, as the Bank indicated that this could be a "one and done" rate hike, given that the UK economy has lost a step, and the uncertainty of Brexit continues to concern investors. Thursday’s rate hike reversed the rate cut back in August 2016, which was an "emergency cut" which the cautious BoE implemented to cushion the economy following the stunning Brexit vote in June 2016.
The Federal Reserve remains in the news, after FOMC member William Dudley announced that he will retire in mid-2018. This move could have implications for monetary policy, depending on who will replace Dudley. A possible candidate is Kevin Warsh, who made the short list for the successor to Fed Chair Janet Yellen. Warsh is in favor of higher rates and favors less regulation of the banking sector.
On Thursday, US President Trump nominated Federal Reserve Governor Jerome Powell to head the Federal Reserve. Powell will take over in February 2018 when Yellen’s term expires. Powell is expected to hold the course with monetary policy, which has been marked by incremental and small rate hikes since December 2015. It’s all but a given that the Fed will raise interest rates in December, but the forecast for 2018 is less clear. If the US economy continues to grow at current levels, we could see up to three rate hikes next year. Powell will also be tasked with continuing to trim the Fed’s huge balance sheet of $4.2 billion. Last month, the Fed has started trimming the balance sheet by $10 billion/mth, but these cuts are expected to increase in size next year.
