GBP/USD Rally Driven By US Fiscal Stress Rather Than Domestic Factors
The British pound (GBP) has been experiencing a significant rally in recent weeks, with its value against the US dollar (USD) reaching a six-month high of 1.3675 last Friday. However, this surge is not being driven by domestic factors, but rather by external events.
The Bank of England has kept interest rates at 3.75% since July, and there are no major economic indicators on the horizon that could impact the pound until September 17, when the next monetary policy decision is due. In contrast, the US calendar this week includes several key releases, including the July PCE report, which saw a higher-than-expected inflation reading of 3.7%, above the consensus estimate of 3.6%.
The dollar's rally was fueled by concerns over fiscal stress in the US, with Treasury yields rebounding across the curve after the decision to double long-dated bond buyback operations. The pound benefited from this trend due to its higher policy rate and liquidity, but this advantage may be short-lived if the Fed tightens monetary policy sooner than expected.
The market positioning suggests that a September hike is still on the table, with a probability of 38.4%, while December is fully priced in at 61.1%. The median forecast among major institutions clusters around 1.33 for the third quarter and 1.34 for the fourth, below the current spot price of 1.3605.