British Pound Gains Ground on Hawkish BoE Stance

Fundamental analysis of Forex market

The British pound is almost unchanged in the Thursday session. In North American trade, GBP/USD is trading at 1.3253, up 0.62% on the day. On the release front, Britain’s budget deficit narrowed to GBP 3.4 billion, well below the estimate of GBP 5.1 billion. The Bank of England maintained the benchmark rate at 0.50%, but three policymakers voted in favor of a hike, surprising the markets. Later in the day, BoE Governor Mark Carney will deliver remarks at an event in London. Over in the U.S, key U.S indicators were mixed. The Philly Fed Manufacturing Index slid to 19.9 points, its lowest level since August. There was better news on the employment front, as unemployment claims remained unchanged at 218 thousand, beating the estimate of 220 thousand. On Friday, OPEC members meet in Vienna.

There were no surprises as the Bank of England held the course on interest rates, pegging the benchmark rate at 0.50% for a sixth straight month. However, the markets had expected the vote on rates to be 7-2, so the vote of 6-3 was unexpected and has boosted the British pound. Policymakers sounded optimistic about the economy, saying that the weak first quarter was a temporary event. The hawkish stance of the BoE has raised speculation that the Bank will press the rate trigger at the next policy meeting in August.

The escalating trade battle between the United States and China has boosted the U.S dollar but taken a toll on the British pound. The most recent round of the trade spat between China and the U.S started on Friday, when the U.S announced a 25 percent tariff on $50 billion in Chinese goods. After China responded with an identical move on U.S. imports, President Trump has now threatened to impose 10 percent tariffs on some $200 billion in Chinese goods. Not surprisingly, China has threatened to retaliate against this latest move. Trump has also slapped tariffs on steel and aluminum imports from the European Union, which directly affects British producers. If the trade war continues, the pound could be heading for further headwinds.