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Pound Rally Takes Pause, Markets Await FOMC Minutes

GBP/USD is unchanged in the Wednesday session, after posting sharp gains on Tuesday. In North American trade, the pair is trading at 1.3064, up 0.01% on the day. It’s a quiet day on the release front. The sole U.K. indicator, CBI Industrial Order Expectations rebounded with a score of 6, crushing the estimate of -5 points. There are no data indicators in the United States. On Thursday, the U.K. releases public sector net borrowing, with the markets expecting a rare budget surplus. The U.S. will release durable goods orders and unemployment claims.

It’s been an impressive rally for the British pound, as GBP/USD has jumped 2.0% since Friday. On Tuesday, the pair climbed to 1.3070, its highest level in two weeks. Investors were pleased with the January job numbers, as the U.K. labor picture remains rosy despite the pressures of the global trade war and the tensions around Brexit. Wage growth remains strong, posting a second straight gain of 3.4%, just below the forecast of 3.5%. The number of employed people continues to grow, and the unemployment rate remained pegged at just 4.0%. Consumer spending surged in January, as retail sales jumped 1.0%, its second strong gain in three months.

The Federal Reserve has turned dovish in 2019, after aggressively raising rates four times in 2018. If recent comments from Fed policymakers are a reliable indication, the minutes from the January policy meeting are also likely to be dovish in tone. The January rate statement discarded previous pledges of “further gradual increases” in interest rates, and said it would be “patient” before any further hikes. The current Fed projection calls for two rate hikes this year, but that is subject to change, based on the strength of the U.S. economy. The markets have priced in a hold on rates for the near-term, with little expectation of a rate hike in the first half of the year.

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