British Pound Higher as Consumer Credit Levels Rise

The British pound has posted gains in the Monday session. In North American trade, the pair is trading at 1.3136, up 0.24% on the day. On the release front, British Net Lending to Individuals improved to GBP 5.4 billion, edging above the estimate of GBP 5.3 billion. Later in the day, British GfK Consumer Confidence is expected to post a second straight reading of -9 points. In the U.S, Pending Home Sales posted a strong gain of 0.9%, rebounding after two straight declines. This easily beat the estimate of 0.4%. On Tuesday, the U.S releases consumer spending and inflation indicators, as well as CB Consumer Confidence.

The pound hasn’t made much noise in recent weeks, but that could change later in the week. On Thursday, the Bank of England will set the benchmark rate, and the markets are expecting a 25-point hike, which would raise the rate to 0.75%. BoE policymakers are divided on the timing of hike, the economy is coming off a soft first quarter and wage growth as been weak – both reasons to avoid a hike. Proponents of a rate increase point to the tight labor market and high employment participation rate. Brexit is another factor, as the messy state of negotiations with the EU could lead to a ‘hard Brexit’ (no deal with the EU) which could take a toll on the economy. It could be a busy week for the pound ahead of the rate meeting.

The U.S economy continues to sparkle, and Friday’s Advance GDP for the second quarter reflected this, with an excellent gain of 4.1%. This is much higher than the 2.2% gain recorded in the first quarter. This reading was within market expectations, so the dollar wasn’t able to gain ground. Strong economic numbers have kept the U.S currency at high levels, despite recent remarks by President Trump saying that the dollar is too high and is hampering exports. These comments have weighed on the dollar, but usually for a brief time only, as the performance of the economy has talked louder than Trump’s tweets. On Friday, Trump took credit for the strong GDP reading and claimed that “these numbers are very, very sustainable”. However, analysts are being more cautious in their forecasts, with growth in the third quarter expected to drop to around 2.5 percent.