The GBP / USD duo fell sharply in trading on Thursday based on the data. That pair was following the dovish statement of the Governor of the Bank of England (BoE) yesterday.
The pound fell about 0.6 percent to its lowest level since April 26 at 1.2397. It was especially against the United States dollar.
BoE Governor Andrew Bailey told the British Chamber of Commerce Annual Conference that the impact of rate hikes announced so far had not fully expanded in the economy.
However, inflation will decline sharply until it is close to the 2 percent target by the end of this year. The situation looks brighter than it was a few months ago, as Bailey said.
Smaller Rise in Unemployment May Be Happened
In the latest Monetary Policy Report (MPR) that was published last week, the analysts now forecast moderate but positive growth for economic. That also means a much smaller rise in unemployment.
However, they also have good reason to expect inflation to fall sharply in the months ahead, starting with April data due on May 24. Market participants interpreted Bailey's remarks as a signal that the rate hike cycle is over.
They also thought that BoE is not raising rates again in the months ahead. GBP/USD in the short term is pressured by such speculation as well as the appreciation of the US dollar. That was although the outlook is better in the longer term.
BOE may Not Raise their Rates Again
Elsewhere, the Analysts from ABN AMRO expect the BoE will not raise their interest rates again. However, it may remain more hawkish than the Federal Reserve had.
Therefore, they predict GBP/USD to reach 1.24 by the end of September. It means another 1.24 by the end of this year, then rise to 1.25 by the end of the first quarter of 2024.
Besides that, the 1.26 by the end of the second quarter of 2024 is probably occured too. It seems that they are less dovish on the BoE than they have had on the ECB and the Fed.
This was said by Georgette Boele, a Senior FX Strategist at ABN AMRO. Compared to the market and analysts, they are a little less hawkish (about the BoE) this year and a little less dovish next year.
US Dollar is Corrected
As a result, the analysts updated their forecast to reflect this gap in the market. They also expect a higher sterling rate ahead where that is still possible to happen.
Meanwhile, The greenback corrected quite sharply versus major currencies at the close of trading on Friday (May 19). It was breaking the 3-day rally in a row that was formed earlier.
Some analysts consider it reasonable if the USD corrects at the weekend, considering investors tend to take profit taking. However, some argue that the US Dollar slipped due to the statements of Fed officials.
These officials’ statements were initially hawkish but then became neutral. In his latest statement, Fed Chairman Jerome Powell said that monetary policy may not have to go further than it is today.
DXY is Weakening by 0.32 Percent
Monetary policy will not go further due to tightening bank credit conditions. In response to the above change in sentiment, the Dollar Index (DXY) weakened by 0.32% to 103.19 at the close of trading on Friday.
However, in the past week, DXY still recorded a gain of 0.47% where it was inline with several analysts' predictions. Meanwhile, Gold safe haven assets fell to reach the level of 1950 on Thursday.
Gold slipped after markets responded to the Fed's hawkish tone on resolving inflation. As a result, this commodity naturally plummeted to change the daily trading bias to bearish.
That is why; some market participants feel that they have to prepare the right scenario. These are like opening the right position at a right time.