The GBPUSD currency pair was trading down over 109 pips at writing amid concerns that further tightening measures by the Bank of England would hurt the British economy despite the record-high inflation in the country.
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Investor sentiment towards the Sterling pound was at an all-time low ahead of a speech by the Bank of England Governor Andrew Bailey scheduled for later today. Analysts and investors expect Bailey to reiterate the BoE’s commitment to tighter monetary policies following the recent 50 bps BoE rate hike.
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The UK government is also considering other non-monetary policy-linked measures to combat the record-high inflation, including slashing the salaries of public sector employees to reduce their disposable income and desire to spend to reduce overall demand in the country.
However, cutting public employees' salaries would be highly unpopular. Therefore, despite talk that such a move is likely, it is doubtful to succeed.
The Bank of England is looking at the May inflation figures, which should have been lower given the decline in fuel prices. However, the inflation rate remained high, driven by demand for second hands cars that were selling at a premium, which explains the government’s desire to cut consumers' disposable income.
The UK inflation hit a new high of 7.1%, making British Prime Minister Rishi Sunak look bad since he had promised to halve inflation by the year's end. However, a move to cut public servants’ salaries would make the PM look worse in the eyes of voters and the public.
The rally in the US Dollar index, which tracks the dollar’s performance against a basket of its peers, including the Sterling pound, also contributed to its overall weakness. The US dollar was boosted by the positive US durable goods data released by the Census Bureau yesterday.
The UK’s Finance Minister Jeremy Hunt has urged industry regulators not to elevate profit margins by taking advantage of resilient demand. The minister wants businesses to freeze profits and help the government lower prices.
Meanwhile, investors should look forward to today’s BoE Governor Andrew Bailey’s speech.
*This is not investment advice.
The GBPUSD price chart.
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