The pound ended the week back where it started against the dollar has opened at $1.3925 this morning. Mid-week, it rallied on hopes that the Bank of England would join the Federal Reserve in adopting a more hawkish stance. However, despite being cautiously upbeat and raising its forecasts for both the economy and inflation, the old lady kept its bond-buying programme unchanged. With the BoE now following the Fed\u2019s mantra that the rise in inflation is \u201ctransitory\u201d and likely to subside in 2022, the chances of an early hike in interest rates have receded for the time being, and sterling may continue to be a little vulnerable to dollar strength in the short term.<\/span><\/p>\n
With little on the UK data docket to excite investors, we expect the pound to have a relatively stable time. Still, it could again be buffeted by outside influences, particularly those emanating from the US, with the moves possibly being exaggerated by the month-and-quarter end on Wednesday. As is typical at the start of a new month, the currency market\u2019s focus of attention will be on the employment reports from the US, which are released throughout the week, culminating with the Non-Farm Payroll report this coming Friday. With the Federal Reserve placing equal importance on full employment as it does on inflation, these figures are likely to cause some volatility in the markets, and it promises to be a lively end to the week heightened by the fact that the US heads in a long holiday weekend to celebrate Independence Day. The ongoing dispute with the EU over the issue of chilled meats looks like it will be temporally resolved by an extension of the current agreement, so the market narrative this week will be driven not by politics but by the data released both domestically and externally.<\/span><\/p>\n