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Pound rises after positive data, but rate decisions loom

The British pound saw a rise in its fortunes during trading on Monday after some positive lending data was released.

Net lending to individuals was forecast to rise by £5.3bn but, in the end, it performed better than expected and rose to £5.4bn instead.

The news came as a recent report from the European Commission indicated that consumer confidence levels in Britain were at almost their highest point in the last 24 months.

At one stage during the North American session, the pound was trading at 1.3136, which represents a rise of almost an entire percentage point on the rest of the day.

The improvements were welcome for the pound, which has seen a number of setbacks recently.

A major source of volatility for the currency came from domestic politics, with British Prime Minister Theresa May facing a number of rebellions and resignations from her own party in recent weeks, although these appear to have settled down for the time being, as Parliament is now in its summer recess.

The pound’s next big test is likely to come on Thursday, when the country’s central bank, the Bank of England (BoE), makes its next monetary policy rate decision.

The BoE is expected to raise interest rates by a quarter of a percentage point to 0.75%.

Despite this being the market’s anticipated outcome, the decision is not set in stone. Attributed to a range of reasons including Brexit and the weather during the winter months, British economic growth was poor during the first few months of 2018, which could in theory boost the no-rise case of the Bank’s more cautious policymakers.

Whichever way the Bank goes, Britain won’t be the only major economy experiencing the effects of such a decision this week.

The Bank of Japan (BoJ) is currently debating its next monetary policy move, and it is expected to announce its decision on Tuesday – although it is thought that a rate change in the country is unlikely.

In between the announcements in Tokyo and London will come a third major monetary policy decision.

The US Federal Reserve will announce its latest monetary policy decision on Wednesday. While it is probable that the Bank will delay a rate rise this time around given that it raised rates as recently as June, it is likely that the meeting will give some indication of what is to come in the next few months.

It is widely believed that the Fed is feeling very confident and that it is aiming to raise rates on two occasions before the end of 2018 – a perspective which is likely to have been fuelled in part by the recently boosted trade relationship between the US and Europe.

Earlier this month, the Fed’s chair, Jerome Powell, told Congress that tightening was something the board was happy to commit to and he said that “gradual” rises were on the cards.

In practice, this is likely to occur quarterly – so once in September and once again in December – although this is, as yet, simply speculation.

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