Weekly Roundup: Pound volatile as markets adjust BoE bets

Tom Brown May 22nd 2023 - < 1 minute read

Sterling got off to a strong start last week, with a cheerier market mood lifting the increasingly risk-sensitive currency.

However, disappointing jobs data then dented the pound. The UK’s unemployment rate unexpectedly ticked higher while wage growth missed forecasts, which led markets to pare back Bank of England interest rate expectations.

After initially dipping on Wednesday, GBP then rose following comments from BoE Governor Andrew Bailey. Bailey expressed concerns about second-round inflation effects, prompting fresh BoE hike bets.

More hawkish comments from Bailey failed to keep the pound afloat on Thursday, as Sterling weakened amid a lack of data and a risk-off mood.

A shift in risk sentiment saw Sterling rally on Friday, while rising UK government bond yields also aided GBP.

Turning to the week ahead, the UK’s consumer price index on Wednesday could cause significant movement. Stickier core inflation may prompt further BoE bets, although a sharp decline in headline inflation could offset the upside.

Before then, an expected slowdown in UK service-sector activity could dent GBP.

Retail sales round off the week, with a forecast recovery potentially supporting Sterling at the end of the session.

Written by
Tom Brown

Select a topic: