GBP/USD appears to be on its way to test the November-high (1.3321) as it breaks out of the narrow range from earlier this week, and the key developments coming out of the U.K. economy may continue to fuel the near-term resilience in the British Pound should the data prints encourage the Bank of England (BoE) to further normalize monetary policy in 2018.
With the U.K. Consumer Price Index (CPI) anticipated to increase to an annualized 3.1% from 3.0% in October, heightening price pressures may spark a hawkish response from the central bank as Governor Mark Carney and Co. are scheduled to speak over the coming days. Even though the Monetary Policy Committee (MPC) looks poised to retain the current policy at the last 2017-meeting on December 14, the BoE may have little choice but to implement higher borrowing-costs next year as ‘a majority of MPC members had judged that, if the economy continued to follow a path broadly consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure, some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target.’
However, the Jobless Claims report is expected to show Average Weekly Earnings narrowing to 2.1% per annum from 2.2% in August, and signs of subdued wage growth may push the BoE to endorse a wait-and-see approach ahead of 2018 as ‘inflation was expected to fall back over the next year and, conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2% target by the end of the forecast period.’ As a result, the British Pound stands at risk of facing near-term headwinds if the fresh rhetoric from central bank officials drags on interest-rate expectations.
GBP/USD Daily Chart
