Hawkish BoE Vote Split Sends Pound US Dollar (GBP/USD) Exchange Rate Soaring

June 21, 2018 – Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Climbs as BoE Moves Closer to August Rate Rise

The Pound US Dollar (GBP/USD) exchange rate stormed ahead on Thursday, bolstered by a surprising increase in the number of policy member votes for a rate rise at the June Bank of England (BoE) rate meeting.

Investors were pleased to see that Chief Economist Andy Haldane had thrown his hat in with the hawks, putting their number up to 3 (out of 9) and skyrocketing market expectations for a rate rise in August.

These policymakers argued that the strength of the UK’s labour market and the current high levels of inflation necessitated an immediate rate rise, but for the doves, concerns remained regarding Brexit uncertainty and the threat of an escalating trade war.

The bank’s outlook on the UK’s Q2 recovery was also rather positive, with the MPC heralding economic progress that had been made.

‘This judgement appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness’.

US Dollar (USD) Exchange Rates Tumble as Philly Fed Manufacturing Index Hits 19-Month Low

The US Dollar (USD) took a sudden plunge on Thursday, performing well in the morning but falling in the afternoon as investors reacted to a disappointing Philadelphia Fed manufacturing report.

The report’s manufacturing index slowed sharply to 19.9 in June, down from 34.4 in May, with a drop in new orders and activity expectations sending the reading to a 19-month low.

This was largely due to concerns regarding the escalating trade war with China, though many analysts shrugged off the softer figure, asserting that it was probably just a correction rather than a response to the latest round of tariff measures.

Ian Shepherdson, Chief Economist at Pantheon shared this sentiment:

‘The June drops in both the headline and orders indexes probably is just a correction rather than a response to the latest round of tariff threats. We now expect the headline index to hover around the 20 mark; solid, but it’s hard to see sustainable upside from here’.

Ultimately, the outlook for the ‘Buck’ remains rather positive, with the hawkish stance of the US Fed fostering an undercurrent of demand for the currency.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US PMI Results on the Horizon

The Pound US Dollar (GBP/USD) exchange rate could encounter additional volatility tomorrow, with investors due to digest the latest round of Markit PMI results for the US.

Currently, analysts expect the composite reading to ease ever so slightly in June from 56.8 to 56.5, but if today’s manufacturing report is anything to go by, we could see some rising apprehensions regarding the tariff proposals.

If the PMI results fall beyond expectations then the GBP/USD exchange rate could capitalise even further, potentially extending its gains into the end of the week.

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TAGS: Pound Dollar Forecasts