Pound firms on hawkish BoE comments

The pound ticked higher on Monday, supported by comments from a Bank of England (BoE) policymaker.

Trade in Sterling is mixed so far this morning, with GBP/EUR stable at €1.1213 and GBP/USD steady at $1.2025. GBP/CAD and GBP/NZD are subdued at CA$1.6130 and NZ$1.9027, respectively, while GBP/AUD retreats to AU$1.7350.

Looking ahead, will hawkish comments from Federal Reserve Chair Jerome Powell propel the US dollar higher today?

What’s been happening?

The pound opened this week on solid footing, rising on the back of comments from the Bank of England’s Catherine Mann.

Sterling strengthened as Mann warned the BoE may be forced to continue raising interest rates if it is to prevent inflation from becoming entrenched.

Mann also suggested the bank needs to ‘stay the course’ and that the next move is ‘more likely to be another hike than a cut or hold.’

The US dollar also firmed on Monday, with demand for the safe-haven currency being bolstered amid a risk-off impulse as US-China tensions flared.

Reinforcing the uptrend in USD exchange rates was a rise in US Treasury yields.

USD strength left the euro on the defensive yesterday as a result of the strong negative correlation between the world’s more traded currency pairing.

This was despite data showing that German factory orders greatly outpaced expectations in December.

What’s coming up?

Turning to today’s session the spotlight is likely to be on a speech by Federal Reserve Chair Jerome Powell.

Following on from Friday’s bumper payroll print, USD investors are likely to be a little more receptive to any signals from Powell indicating the bank still plans to raise interest rates.

In the meantime, the release of Germany’s latest industrial production figures could weaken the euro this morning, after reporting factory output in the Eurozone’s largest economy shrank more than expected in December.

GBP investors will look to speeches from the BoE’s Dave Ramsden, Hue Pill and Jon Cunliffe for fresh impetus today. If the policymakers echo Mann’s comments the pound could maintain a positive trajectory.