According to data from NADEX, there is a 57% chance the GBP/USD will close above 1.1675. I expect the rate to close around 1.1691 based the inflation rate differentials between the United States and the United Kingdom.
The last U.S. Bureau of Labor Statistics print had the consumer price index 8.5% year-over-year. Data from the Bank of England has inflation around 10.1%.
Policy wise, my interpretation of the messaging coming out of the mouths of Bank of England Governor Andrew Bailey and Federal Reserve System Chairman Jerome Powell is that both central banks will both pursue policy designed to take the appropriate amount of money out of their respective financial systems. Reduce the money supply by encouraging banks to park their cash in their respective central bank accounts, in turn accepting higher interest rate bids from the public who insist on borrowing.
I always ask, who wants to expend USD on GBP. Unlike the Euro, they are not at parity, so it could be an interest rate issue.
Today, the biggest political conversation has been around President Biden’s proposal to eliminate student loan debt for certain borrowers. I don’t see this political act as having any direct impact on foreign exchange.
29 August 2022
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