Pound nosedives on hawkish BoE Bailey comments

The pound tumbled against most of its peers on Wednesday following comments by Bank of England (BoE) Governor Andrew Bailey.

Sterling is left to lick its wounds this morning, with GBP/EUR flat at €1.1584 and GBP/USD subdued at $1.2638. GBP/CAD is steady at CA$1.6771, while GBP/AUD slides to AU$1.9108 and GBP/NZD dips to NZ$2.0783.

Looking ahead, could a rise in German inflation lift the euro today?

What’s been happening?

The pound plummeted yesterday, after comments by Bank of England Governor Andrew Bailey did little to soothe fears the bank could tighten the UK into a recession.

Speaking at a panel at the European Central Bank’s (ECB) annual Sintra Forum, Bailey said recent ‘data shows clear signs of persistent inflation’, and the BoE would ‘do what is necessary’ to return it to target.

In contrast, similarly hawkish comments from ECB President Christine Lagarde and Federal Reserve Chair Jerome Powell on the same panel bolstered their respective currencies.

The uptick in the US dollar proved particularly strong, with Powell stating there is a consensus amongst the Federal Open Market Committee (FOMC) for at least two more rate hikes.

Meanwhile, Lagarde reiterated a July hike is ‘likely’ amid a lack of evidence that underlying inflation is falling.

What’s coming up?

The publication of Germany’s consumer price index looks to be the highlight of today’s data calendar.

This afternoon’s figures are forecast to report German inflation ticked higher in June. Could this boost expectations for tomorrow’s Eurozone CPI release and bolster the euro?

In the spotlight for USD investors will be last week’s US jobless claims. Unemployment claims have been elevated so far in June and analysts forecast this trend will have persisted last week. Could signs of a cooling labour market dent Fed rate hike bets and pull USD exchange rates lower today?

Today will also see the release of the latest US GDP figures. But barring a last-minute revision to first-quarter growth, the impact on the US dollar could be limited.

Meanwhile, in the absence of any GBP data of note, any movement in the pound is likely to be linked to market risk appetite and the UK’s economic outlook. Could this leave Sterling vulnerable to losses?