The pound is ticking higher against the US dollar this morning as the greenback gives up some of Wednesday’s gains after strengthening in the wake of yesterday’s rate decision by the Federal Reserve. This saw the Fed hike rates in December, as had been widely expected, before striking a more hawkish tone than expected as it plotted another two rate hikes in 2019. While this was down from the three signalled back in September, a number of analysts had initially forecast the Fed could target a single hike next year amid signs the US economy is slowing. This was accompanied by an upbeat outlook from Fed Chair Jerome Powell which helped the US dollar to accelerate yesterday evening, although it appeared unable to sustain its gains this morning.
At the same time, the release of the UK’s latest retail sales figures has helped to turbo charge the pound this morning following a sharp surge in growth.
According to data published by the Office for National Statistics (ONS), sales growth in the UK rebounded from -0.4 percent to 1.4 percent in November, easily outpacing expectations of a modest 0.3 percent acceleration.
However, pound investors are unlikely to dwell on the retail sales figures for long as they brace for the Bank of England’s (BoE) own rate decision later this afternoon.
While the BoE is not expected to follow the Fed in raising interest rates this month, the pound to US dollar exchange rate is still likely to see some movement this afternoon as the Bank delivers its forward guidance for 2019.
A number of analysts suggest we could see BoE Governor Mark Carney hint at the possibility of accelerating the pace of monetary tightening next year, following the recent increases in wage growth.
However the BoE is likely to indicate that any hikes next year will be dependent on the outcome of Brexit, something which may limit any upside in the pound.
Meanwhile, US dollar investors are likely to focus on this afternoon’s Philadelphia Fed manufacturing index amid suggestions it may mirror the drop in the New York index earlier in the week and add to evidence the sector is slowing.