GBPUSD took a break after a couple of days of plummeting. The Pound sterling stopped falling against the USD. The current quote for the instrument is 1.2135. First of all, the Pound is under domestic pressure – the United Kingdom has just survived the most significant rail strike in 30 years. However, labour unions aren’t likely to stop here – teachers are the next. All of them are demanding wage indexation because of increasing inflation.
Secondly, the strong USD prevents the Pound from taking advantage of the situation and rebounding. The Governor of the Bank of England Andrew Bailey, who spoke yesterday at the ECB Forum on Central Banking, said that the key task of the British regulator’s monetary policy was to reduce inflation. He believes that the entire economic system is in a state of shock. If the Bank of England realise that the inflation boost isn’t slowing down, it might act more aggressively.
In his opinion, the current situation leaves a lot of options open. The BoE also mentioned that it would like to use its fiscal policy to help and protect the most vulnerable population. As a matter of fact, the British regulator doesn’t have a lot of mechanisms it may use right now. The rate will rise, no doubt about it. However, one shouldn’t expect the monetary policy to be tightened very quickly – the Bank of England is very reluctant to raise its rates and always prefers to wait until the economy reaches stability without any interference.