GBP/USD continues to move higher this week. In North American trade, GBP/USD is trading at 1.3070, up 0.28% on the day. On the release front, British BRC Shop Price Index slowed to 0.4% in April, after a strong gain of 0.9% in the March release. British manufacturing PMI dropped to 53.2, just above the estimate of 53.1. points. Net Lending to Individuals improved to GBP 4.7 billion, above the estimate of GBP 4.5 billion. In the U.S., ADP nonfarm payrolls sparkled with a gain of 275 thousand, crushing the forecast of 181 thousand. ISM Manufacturing PMI is expected to drop to 55.0 points. The spotlight will be on the Federal Reserve, which releases its rate statement. On Thursday, the U.K. releases Construction PMI and the Bank of England will set the benchmark rate. In the U.S., the highlight is unemployment claims.
The Federal Reserve is expected to stay on the sidelines and maintain rates at a range between 2.25-2.50 percent. Investors will be focused on the rate statement, looking for clues regarding the next rate move. The Federal Reserve has said it expects to hold interest rate levels for the rest of the year, and the most recent inflation numbers will reinforce that stance, as the Fed target of 2.0% remains elusive. The Core PCE Price Index, which is the Federal Reserve’s preferred gauge for inflation, came in at 0.0% in March and 0.1% in February (the two events were released on Tuesday due to the government shutdown earlier this year). On an annualized basis, the indicator gained 1.6%, just shy of the estimate of 1.7%. GDP and consumer spending are looking bright, but nonetheless there is no danger of the economy overheating, so the Fed can afford to leave rates at the current level for the near future.
The pound has jumped 1.3% this week and GBP/USD is at its highest level since April 16. Investors are hoping that the BoE rate decision will not rain on the cable party. The bank holds a policy meeting on Thursday, and is expected to maintain rates at 0.75% for a seventh successive month. However, a dovish policy summary could weigh on investor sentiment and push the pound lower. Recent British numbers have been lukewarm, and Brexit will continue to weigh on the pound, even with the extension until October. Consumers remain pessimistic about the economic outlook and uncertainty over Brexit, and this gloomy mood has also affected consumer spending.
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