GBP/USD Slightly Weakens, Iranian Oil Shock Changes BoE Interest Rate Expectations
GBP/USD fell slightly by around 0.1% on Thursday, hovering around 1.3340 in volatile trading. Throughout March, the pair tended to move within a range of around 1.3230–1.3430, with a pattern of lower highs since the late January peak near 1.3820 indicating that upward momentum is fading.
rom the UK side, the Bank of England held interest rates at 3.75% at its March 19 meeting unanimously, a reversal from February when the option of a cut was still realistic. The Middle East war and the effective closure of the Strait of Hormuz changed the interest rate landscape: markets that had previously expected a cut now see a longer-term rate cut—and even the possibility of a hike—as energy costs risk keeping inflation higher.
The BoE also warned that CPI inflation, which remained at 3% in February, could rise towards 3.5% in the coming quarters as rising energy prices spill over into prices. This underscores the policy trade-off: inflation risks rising as domestic demand indicators begin to show weakness.
The next focus in the UK will be the release of February retail sales (consensus -0.8% MoM) and GfK consumer confidence for March (printed at -21, slightly better than the expected -24 but still within range). Weak retail sales data will confirm the tension highlighted by the MPC: inflation is rising while demand is softening.
In the US, the Federal Reserve held interest rates in the 3.50%–3.75% range, with the dot plot still pointing to one cut this year. Weekly jobless claims of 210,000 were in line with expectations, thus not significantly changing market expectations regarding the policy path.
The US market now awaits the University of Michigan's consumer sentiment (consensus 54, previously 55.5) and 1-year inflation expectations (consensus 3.4%). If inflation expectations are higher than expected, the market is likely to view the Fed as remaining cautious, potentially curbing the pound's strength and keeping the dollar relatively strong ahead of the April FOMC meeting.
Source: Newsmaker.id
