Pound Improves in Thin Holiday Trade

GBP/USD has posted gains in the Monday session. The pair is trading at 1.2891, up 0.34% on the day. With British banks are closed for a summer holiday, traders can expect a quiet day from the pair. There are no British or U.S events on the schedule. On Tuesday, the U.S releases CB Consumer Confidence.

Proceed with caution. This sums up the dovish message from Jerome Powell, who spoke at the Jackson Hole Economic Symposium on Friday. His remarks sent the dollar broadly lower and the British pound jumped on the bandwagon and ended the week with gains. Powell reiterated that the Fed would continue its policy of gradual interest rate hikes, saying that a cautious approach was prudent. The Fed has faced criticism about its current policy from all sides – some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

Brexit continues to hover over the British economy like a dark cloud. With only seven months to go before the U.K takes the plunge and leaves the EU, both sides remain entrenched in their negotiating positions, and the prospect of a ‘no deal’ Brexit is becoming a greater possibility with each passing day. Prime Minister May continues to spar with hard-nosed European leaders and is struggling to paper over divisions over Brexit within her Conservative party and the cabinet. The British economy has performed fairly well, but the business sector is exasperated by the lack of clarity or direction from the government over Brexit. The uncertainty over the post-Brexit era has taken a toll on the British pound, which has shed 8.3% since the start of April. Earlier in August, the pound dropped below the 1.27 line, its lowest level since April 2017. Unless the EU and UK show remarkable flexibility and show progress towards reaching an agreement, traders can expect further headwinds for the struggling pound.