Will the GBP/USD recover?
The outlook for the British pound depends largely on the actions of the Bank of England, the evolution of UK inflation, and the overall health of the UK economy. If inflation continues to be a problem, the BoE may hold tight and keep interest rates at 4.75%, which could support the pound. However, if economic growth remains sluggish, the pound could struggle. The BoE’s monetary policy decisions are important when compared with other central banks. For instance, the U.S. Federal Reserve and the European Central Bank (ECB) have been adjusting their interest rates, which can create a difference in yield between the UK and other major economies. If the Fed keeps rates higher for longer, it could lead to further USD strength against the GBP, as investors seek better returns in U.S. assets which has been the key reason for the current downfall of over 6% since the 25th of September.
However, with the recent budget amendments to increase employers NI and Capital gains tax, political uncertainty in the UK has been a huge trending topic as of late. The uncertainty has grown to a point whereby a petition has been created with over 2.5 million votes to call for a general election which again may lead to the GBP losing strength as investors continue to fund US assets.
Moving forward, from a data stand point, we have a quiet week ahead as we close out of November. All Eyes will be on BoE governor, Andrew Bailey, as he speaks on Friday at a press conference in London on the Financial Stability Report. Analysts will be keeping a keen eye on the conference to pick up any hints on the future outlook of the UK’s interest rates.
