Pound v US dollar: GBP steady ahead of forecast BoE interest rate freeze
THE pound is trading tightly against the US dollar today, making £1 worth around $1.354. The pound US dollar exchange rate has been volatile this week.
This latest reading is slightly below the weekly high of $1.359 seen on Wednesday.
After a week of waiting, the Bank of England (BoE) interest rate decision will finally be taking place today.
This could lead to a pound US dollar exchange rate decline.
There has not been any especially supportive UK economic data this week, which means that BoE policymakers are still expected to leave interest rates at 0.5 per cent.
A rate hike up to 0.75 per cent had previously been forecast, but signs of UK economic weakness during April have significantly drained optimism among GBP traders.
Among the reasons for there not to be an interest rate hike today has been a slowdown in UK inflation rates, which has reduced pressure on the BoE to act.
Explaining why an immediate interest rate hike may not be necessary to manage UK inflation rates was Goldman Sachs Senior European Economist Andrew Benito.
He said: “There is a case for raising rates... but rates really don't need to rise very far over the next three years to keep inflation around 2 per cent and to keep unemployment low.
Inflation is already moving back towards the 2 per cent target and faster than previously thought
"Inflation is already moving back towards the 2 per cent target and faster than previously thought."
On the other side of the pairing, the US dollar has been unable to make major gains against the pound due to cautious remarks from Federal Reserve official Raphael Bostic.
Mr Bostic, Fed Bank of Atlanta President, has issued a warning.
He said: “Swelling optimism over tax policy in the beginning of the year has now been replaced almost completely by uncertainty regarding the proposed tariffs and the possibility of a trade war [with China].”
Staying cautious, Mr Bostic predicted that even if inflation stays above the Fed’s 2 per cent target, it would not warrant an immediate interest rate hike to control the situation.
The pound could turn volatile against the US dollar at noon today when the BoE’s interest rate decision is made.
The Bank of England explains the exchange rate
The overriding forecast is for another interest rate freeze at 0.5 per cent, which may trigger a pound US dollar exchange rate slump due to trader disappointment.
In the event that policymakers hike UK interest rates, however, the pound could rally and hit monthly highs against the US dollar.
Today’s main US data will be high-impact inflation rate stats for April, out during the afternoon.
Levels of monthly and annual inflation are expected to have risen; such results could greatly raise confidence among US dollar traders and spark a US dollar pound rate rise.