Support
BoE’s Dhingra calls for rate normalization
BoE’s Swati Dhingra urges immediate interest rate normalization, citing weak UK demand and stable inflation
BoE MPC member Swati Dhingra advocates for starting interest rate normalization.
Dhingra argues that current demand in the UK is too weak to cause another inflation surge.
The Pound Sterling holds firm near 1.3000 against the US Dollar amid expectations of Fed rate cuts.
In a recent podcast, Swati Dhingra, a member of the Bank of England's Monetary Policy Committee (MPC), underscored the importance of beginning to normalize interest rates. She emphasized the need to "stop squeezing living standards," a measure previously taken by the central bank to control inflation.
Dhingra noted that the demand in the UK is not strong enough to trigger another inflation spike, highlighting that inflation had returned to 2% in May. She remarked, "I don’t see some kind of consumption boom and if we’re going to start moderating from the very high level of interest rate that we are at now… it is going to take some time for that to happen, for us to moderate it as well as for that to then feed into the real economy.”
As a known dove within the MPC, Dhingra has consistently voted since February to cut the Bank Rate from its 16-year high of 5.25%.
The Pound Sterling (GBP) maintained gains near the psychological resistance of 1.3000 against the US Dollar (USD) during Monday’s New York session. The GBP/USD pair remains buoyant amid rising expectations that the Federal Reserve (Fed) will begin reducing interest rates in the September meeting.
Market speculation for Fed rate cuts surged significantly following Thursday's US Consumer Price Index (CPI) report for June, which indicated a resumption of the disinflation process after a pause in the first quarter. Inflationary pressures decelerated in both headline and core measures. The likelihood of the Fed cutting its key interest rates increased further due to emerging weaknesses in the labor market.
US Dollar
Meanwhile, the US Dollar Index (DXY), which measures the Greenback's value against six major currencies, edged higher near 104.00. The USD Index found support as investors sought safe-haven assets following an assassination attempt on former US President Donald Trump in Pennsylvania. This incident has boosted the odds of Trump securing a win in the upcoming US Presidential elections.
Despite this, the short-term outlook for the US Dollar remains bearish as investors consider a September rate cut by the Fed a certainty. This week, the focus will be on the US monthly Retail Sales data for June, set to be released on Tuesday. Economists predict that Retail Sales remained unchanged following a modest growth of 0.1% in May.
