Improved risk appetite pushes GBP/USD higher after ECB hike

The GBP/USD pair is rallying sharply in the North American session, propelled by an interest rate hike by the ECB and a pause on the side of the US Fed. Expectations that the Bank of England (BoE) could be the more hawkish central bank amongst G10 FX countries keep the GBP/USD underpinned toward the 1.2800 mark. At the time of writing, the GBP/USD is trading at 1.2764 after hitting a low of 1.2628.

US Treasury yields are lower despite forecasted hikes; a headwind for the dollar bolstered the GBP/USD. Wall Street is trading with gains following the Fed’s rate policy decision to keep rates unchanged. Even though Jerome Powell telegraphed two further 25 bps rate hikes, the markets are not buying their narrative, as US Treasury bond yields drift lower.

The European Central Bank (ECB) lifted rates by 25 bps and suggested more increases are coming, which lent a lifeline to the Pound Sterling (GBP). Meanwhile, money market futures estimates the Bank of England (BoE) would continue to raise rates after solid employment data and April’s GDP figures. WIRP suggests a 25 bps hike in June is fully priced in, as well as August, September, and November, bringing the Bank Rate to 5.75%.

US Retail Sales unexpectedly jumped in May by 0.3% MoM, against estimates for a 0.1% contraction. On the labour market front, Initial Jobless Claims for the week ending June 10 rose 262K above the 249K analysts foresee, with back-to-back increases in claims, flashing that the labor market is cooling.
In other data, Industrial Production in the US grew 0.2% YoY, though monthly figures showed a contraction of -0.2%.

Aside from this, the Philadelphia Fed Manufacturing Index came better than expected but trailed May’s report; while the New York Empire State Manufacturing Index improved unexpectedly, exceeding estimates of -15.1.