The Pound suffered this morning, trading narrowly lower against the USD as an upbeat market mood was offset by UK recession woes.
The Pound gained slightly on Monday despite a lack of major economic data. After last week’s major selloff, Sterling recouped some of its losses to open the week.
An improving market mood, due to the announcements of further economic stimulus in China, helped buoy risk appetite.
The Bank of England is expected to continue their aggressive approach to hikes. With most banks nearing the end of their cycles, the BoE is expected to raise interest rates for a 15th consecutive time. This would bring the cash rate to 5.5%, a fresh 15-year high.
BoE Chief Economist reiterated this view last week when he acknowledged persistently high inflation, and vowed the central bank will bring inflation down.
However, lingering fears of recession could be keeping a firm lid on the Pound. With stuttering factory activity, and a stumbling service sector, prolonged elevated interest rates could start to tighten the squeeze on the UK economy.
US Dollar stayed afloat despite the North American markets closed to observe Labor Day. An improving market mood also failed to impact the currency too much as Beijing announce further stimulus to kickstart its faltering economy.
Looking ahead, GBP/USD exchange rate could see further movement with the latest retail sales data from the British Retail Consortium. An expected 2.2% monthly increase in retail sales volumes could boost Sterling.