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GBP/USD Falls Around 1.2370 as BoE Considers Taking Quick Action Before UK Inflation and US PMI
GBP/USD continues the previous day's fall from 10-month high and accepts offers to renew intraday low. Concerns over US subsidies and the BoE's potential adjustments to the deposit guarantee program weigh on the Cable pair. Positive US data and Fed discussions resist bets on rate reduction and policy changes and support the US dollar's corrective comeback. The week's GBP/USD traders will be entertained by a slew of UK data and US PMIs.
The GBP/USD currency pair is on shaky ground as it extended Sunday's decline from a 10-month high to retest an intraday low of 1.2390 on Monday morning. In order to taunt bearish after breaking a four-week upswing, the Cable pair explains the latest worries coming from the UK as well as the optimism surrounding the Federal Reserve (Fed).
According to the Financial Times (FT), "The Bank of England is considering a major overhaul of its deposit guarantee scheme, including increasing the amount covered for businesses and compelling banks to pre-fund the system to a greater extent to ensure faster access to cash when a lender collapses." The revelation adds fuel to banking concerns about the UK and puts pressure on the Cable duo.
UK Chancellor Jeremy Hunt's concerns about US subsidies as British firms hurry to claim benefits while intending to leave the UK may also be exerting downward pressure on the GBP/USD exchange rate. According to the news, "Chancellor Jeremy Hunt warned Sky News that Britain should be wary of any new subsidies, warning that they could undermine the economy and possibly even spark a protectionist trade war."
The US Dollar, on the other hand, was able to recover after a wider-than-expected decline in US retail sales was unable to outweigh positive data from the US industrial production and the University of Michigan's (UoM) consumer confidence index the day before. In spite of this, US retail sales decreased by 1.0% in March compared to -0.4% predicted and -0.2% in February. Contrarily, Industrial Production increased by 0.4% in the month in question as opposed to the 0.2% market consensus and preceding reading. The preliminary result for April of the University of Michigan's (UoM) Consumer Confidence Index, which increased to 63.5 from 62.0 analysts' estimates and prior readings, was also encouraging. In addition, year-ahead inflation forecasts increased from 3.6% in March to 4.6% in April, while their 5-year counterparts showed a decrease of 2.9% for the same month.
It should be noted that the Fed's officials have recently come across as more hawkish than their BoE counterparts, which has put extra pressure on the GBP/USD exchange rate.
In this environment, the S&P 500 Futures show modest gains following Wall Street's pessimistic finish, while the bond rates remain flat after registering weekly gains.
Moving on, the current week becomes key for GBP/USD traders as it presents a variety of high-quality data on inflation, employment, and UK PMIs. These data may be used to support the BoE officials' waning hawkish leaning and may keep the bears on the table. The US PMIs and Fed discussions, however, shouldn't be ignored for unambiguous guidelines.
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