The pound held onto its gains against the dollar on Monday, after Bank of England Governor Andrew Bailey reiterated that inflation remains the primary driver of monetary policy decisions, despite concerns about the banking industry.
GBP/USD rose by 0.45%, hovering near its daily high at $1.2285. The pound has been steadily climbing since last week, supported by a positive economic outlook and a steady decline in COVID-19 cases in the UK.
Inflation as Monetary Policy Driver
Bailey’s comments came amid concerns about the turmoil in the banking industry, particularly following the collapse of Greensill Capital and the fallout from the Archegos Capital scandal. However, the Bank of England Governor reassured investors that inflation remained the main focus of the central bank’s monetary policy decisions.
Bailey’s remarks echo those made by the Bank of England in recent months, as policymakers have stressed the need to maintain price stability in the face of economic uncertainty caused by the pandemic.
The Bank of England has maintained a loose monetary policy stance since the onset of the pandemic, keeping interest rates at a record low of 0.1% and expanding its quantitative easing program to stimulate the economy.
Positive Economic Outlook
Despite concerns over the banking industry and the ongoing pandemic, the UK’s economic outlook has been steadily improving, with GDP expected to rebound strongly this year as businesses reopen and consumer spending picks up.
Last week, the Bank of England released its latest economic forecasts, predicting that the UK’s economy would grow by 7.25% in 2021, its strongest growth rate since 1941.
The central bank also upgraded its inflation forecast for the year, projecting that it would hit 2.4% in the fourth quarter, above the bank’s 2% target.
Pound’s Performance
The positive economic outlook has supported the pound’s performance against the dollar in recent weeks, with the currency reaching its highest level in over a year against the greenback last week.
The pound has also been buoyed by the UK’s successful vaccination campaign, which has led to a steady decline in COVID-19 cases and a gradual reopening of the economy.
As a result, investors have become more bullish on the pound, with some analysts predicting that it could continue to climb against the dollar in the coming months.
Conclusion
The pound’s steady gains against the dollar on Monday were supported by Bank of England Governor Andrew Bailey’s reaffirmation that inflation remains the main driver of monetary policy decisions, despite concerns about the banking industry.
The UK’s positive economic outlook, supported by the central bank’s loose monetary policy stance and successful vaccination campaign, has also boosted the pound’s performance in recent weeks, with analysts predicting further gains in the future
