British Pound Retains Multi-Week High Against Dollar Amid Weakening Fundamentals

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On Thursday, the British pound bulls still have the six-month highs reached in December against the US dollar firmly in their sights, but a London morning with nothing in the way of domestic economic data may be dampening their desire to attempt it again soon.

The idea that interest rates in the UK still have a long way to go—possibly a very long way—is what continues to support the pound. As markets begin to believe that the Federal Reserve may have taken nearly enough action in that direction to address its own inflationary issues, demand for the dollar is being significantly reduced.

This week’s strong British wage growth figures won’t change the fact that inflation is still running at four-decade-high levels, despite some flimsy indications to the contrary.

British Pound Traders Anticipating Friday Data

However, because there are no UK data releases on Thursday, traders had to make do with anticipating Friday’s consumer confidence and retail sales reports for December. Retail sales are expected to have improved slightly month over month, though they still appear to be horrendous when compared to the Christmas season in 2021, so consumers should be slightly less pessimistic than they were.

With US unemployment claims, housing starts, and building permit data coming up along with commentary from Vice Chair Lael Brainard and Boston Fed President Susan Collins, the USD side of GBP/USD could get a little more lively later. In contrast to the more aggressive increases we witnessed last year, the latter has already proclaimed herself in favor of smaller, quarter-percentage-point interest rate increases.

This is turning out to be a fairly hot Fed topic. Patrick Harker, president of the Philadelphia Fed. In light of indications that inflation’s hold is loosening, Mr. Harker declared on Wednesday that he was prepared for the central bank to moderate the rate of interest rate increases.