The pound rallied today, persisting at more than two-week highs against a broadly weaker dollar, as traders await key data on the UK’s manufacturing industry this week.
The strength of the pound is largely down to broad dollar weakness, as investors sold the US unit on hopes that loosening lockdowns in China could help global growth.
PMI data tomorrow will increase emphasis on how current levels of economic activity in the UK is faring against the Eurozone and the US, and what this means for the UK growth outlook. Strong labour numbers early last week had reinforced expectations that the BoE will need to continue raising interest rates to fight high inflation. Data on Friday showed British retail sales jumping unexpectedly in April.
But expectations were tempered days later when inflation hit a 40-year high, raising concerns over how far the BoE will be able to hike rates without precipitating an economic downturn.
We’re seeing in the last week or so a renewed appetite from policy makers to continue hiking rates despite the continuing growth outlook.
It’s a bit of a turnaround from May 5 when it was assumed they would hike once or twice before going on a long pause before summer. The BoE has raised interest rates four times since December, more than any other major central bank.