- GBP/USD got a strong boost after the BoE signalled that it could hike rates this year.
- Hawkish Fed expectations acted as a tailwind for the USD and might cap further gains.
The GBP/USD pair continued scaling higher heading into the European session and shot to near two-week tops, around the 1.3670 region in the last hour.
Following Friday's two-way price moves, the GBP/USD pair caught fresh bids on the first day of a new week and is now looking to build on the recent strong move up from the vicinity of the 1.3400 mark. The British pound was underpinned by signals of an imminent interest rate hike by the Bank of England (BoE), though a modest US dollar strength might keep a lid on any further gains.
Michael Saunders, one of the most hawkish members of the BoE's Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Earlier Governor Andrew Bailey warned of a potentially very damaging period of inflation unless policymakers take action, shifting the market focus to the upcoming policy meeting in November.
On the other hand, the USD drew some support from an extension of the recent strong move up in the US Treasury bond yields, bolstered by expectations for an early policy tightening by the Fed. Despite disappointing headline NFP print, investors seem convinced that the Fed remains on track to begin rolling back its massive pandemic-era stimulus by the end of 2021.
Apart from this, worries that the recent runaway rally in crude oil/energy prices will stoke inflation have been fueling speculations about the possibility of an interest rate hike in 2022. Fears of a faster than expected rise in inflation turned out to be another factor that contributed to the spike in yields, which, in turn, continued acting as a tailwind for the greenback.
Hence, the market focus now shifts to the release of the latest US consumer inflation figures on Wednesday. Investors will further take cues from this week's release of the FOMC monetary policy meeting minutes and monthly US Retail Sales figures. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair.
This makes it prudent to wait for some follow-through buying before positioning for any further appreciating move amid absent relevant market-moving UK economic releases. Moreover, the US markets are closed in observance of Columbus Day and further warrants some caution for aggressive bullish traders ahead of this week's key macro data from the UK and the US.