It has been a great week for the British pound, which rallied more than 300 pips against the US dollar.
Upside surprises in economic data as well as hawkish minutes from their latest monetary policy meeting confirmed that it will be months before we see another rate cut from the Bank of England. In fact, for all intents and purposes, the next move from the BoE may have to be a rate hike. Unlike the US, the Bank of England has a strict inflation target and if inflation is more than 3 percent, the central bank governor is forced to write a special letter to the Chancellor to explain why inflation has increased and to outline the time frame for bringing inflation back to target. Earlier this month, consumer prices hit 3 percent on a yearly basis, and now, the BoE must do all that they can to rein in inflation. The recent stability in economic data has helped their cause as long as the economy does not fall back into a downward spiral. With no major economic data due for release next week, the British pound stands a chance at holding onto its gains as long as there isn’t surprisingly strong US data.