GBP Gains on USD in Early Monday Trading

Published on: 08/2/18 1:15 PM

Category: Uncategorised

In the early hours of trading on Monday, the GBP continued to firm up its position against the USD, reaching an. The GBP’s gain on Monday represented an increase in value of roughly 0.2 percent at the start of what is expected to be an important week in the Forex markets.

Largely responsible for the GBP’s increase is the expectation that the Bank of England will vote to raise interest rates in its next policy meeting, which will take place on Thursday. The pending rate hike is stabilizing the pound’s position relative to the dollar, though some downward pressure on its value is also being exerted by unexpectedly low inflation rates in June. Overall, though, the short-term outlook among traders for the British pound appears to be relatively positive.

If the Bank of England does choose to raise interest rates, the move will also trigger speculation about future rate hikes. Economists and analysts are broadly skeptical that Britain’s central bank will pursue an aggressive policy of raising interest rates throughout the remainder of the year. Economic uncertainty, in large part generated by Brexit, has made the Bank of England generally cautious in its moves to return interest rates to more normal levels. Some analysts even expect that next year could bring only a single interest rate hike from the bank. This more conservative approach to raising interest rates is in sharp contrast to the general pace of rate hikes around the world as the global economy continues to show strong performance in 2018.

Also relevant to the long-term view of the GBP/USD pair will be the United States Federal Reserve’s decision on future rate hikes, which could similarly increase the strength of the dollar. At the moment, most Forex investors and analysts are expecting two more rate hikes this year, one in September and one in December. If these rate increases occur while the Bank of England remains cautious in advancing its interest rates, the dollar could gradually gain strength against the pound sterling in the coming months.

The week ahead in the Forex markets will also include a critical Bank of Japan meeting that will likely have major implications for the strength of the JPY. Between this meeting, the Bank of England’s pending meeting and the continued waiting for developments on US-China trade policy, the coming week appears poised to be a volatile one.