- UK Prime Minister Boris Johnson has resigned from his post and will remain until a new prime minister is elected.
- USD is trading lower amid rising risk appetite.
- The BoE’s Pill and Mann support a faster pace of rate hikes.
- The Fed’s Waller backs a 75 basis point hike, adding that the US economy is strong.
After a difficult week in UK politics, the GBP recovered to the 1.2000 level when British Prime Minister Boris Johnson announced that he would resign in the autumn. However, he will remain Prime Minister and announced that his government will not seek new policies or changes and will be left to the new PM. At the time of writing this article, the GBP/USD it trades at 1.2000.
GBP/USD advances on US dollar weakness and rising US initial jobless claims.
US equities remain positive throughout the day, reflecting diminishing recession fears and positive investor sentiment. Meanwhile, US Treasury yields rise, and the USD pulls back from 2-year highs, a tailwind for GBP/USD. The US Dollar Index, which measures the value of the USD against its peers, has rallied a bit, rising 0.13%, and back above the 107,000 level.
Financial markets have been choppy during the week. On Wednesday, the Federal Reserve released monetary policy minutes for June, showing the central bank’s commitment to tackle inflation, even at the cost of lower economic growth. Monetary policymakers reiterated that the July meeting will be at 50 or 75 basis points, and that if inflation persists they will adopt a “tighter” monetary policy stance.
Meanwhile, Huw Pill, chief economist at the Bank of England, said he would consider a rapid pace of interest rate hikes to prevent high inflation from taking hold. Likewise, Catherine Mann, a member of the Monetary Policy Committee (MPC) of the Bank of England, said that she considered that rate hikes should be accelerated.
At the time of this writing, Fed speakers are giving statements. St. Louis Fed President James Bullard said US economic output is expected to continue to expand through 2022. At the same time, Fed Governor Christopher Waller favored a hike in rates of 75 basis points in July, and to go back to a 50 basis point increase in September. Waller added that recession fears are overblown and the US economy is strong.
Jobless claims for the week ending July 2 were released on the US economic docket. The figures were higher than expected, although the labor market showed moderation. In addition, the trade balance reduced the deficit from -86.7 billion dollars to -85.5 billion dollars, thanks to the increase in exports.
What to watch out for
Friday’s US docket will include a statement from New York Fed President John Williams and June’s non-farm payroll report, which is expected to be 268,000, up from 390,000 in the previous reading. One sub-component to watch is median hourly earnings, which is expected at 5%, down from 5.2% in May.
Technical levels
Source: Fx Street
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