Pound gains as BoE's Bailey keeps inflation fight in focus despite banking woes

By Yasin Ebrahim

Investing.com – The pound held its gains against the dollar Monday after Bank of England Governor Andrew Bailey said inflation remained the main driver of monetary policy decisions in the wake of concerns about the turmoil in banking.

GBP/USD rose 0.45% to remain close to its highs of the day at $1.2285.

The Bank of England, or BoE, governor said the Financial Policy Committee -- set up after the great financial crisis to ensure the stability of the UK Financial system – was “on the case of securing financial stability,” allowing the central bank to focus on its “own important job of returning inflation to target,” Bailey said in a speech at the London School of Economics on Monday. 

Bailey also signaled that the bank would be ready to deliver more monetary tightening if “signs of persistent inflationary pressures become more evident.”

The ongoing worries about price pressures come less than a week after the BoE hiked rates by 0.25% last week, revised its economic growth forecast higher and flagged the strong labor market as a threat to inflation.

About 50% of traders expect the BoE to hike more times this year before a pause. 

The less depressing growth economic outlook at a time when the UK government’s fiscal plan is on a much more steady footing than it was six months ago - when the then Prime Minister Lizz Truss’ mini budget sparked chaos – forced market participants to reassess their bearish calls on the pound.

“We no longer look for idiosyncratic GBP weakness, as investor sentiment on the fiscal side has improved meaningfully,” Goldman Sachs said in a recent note.

The comments from Bailey come just a day ahead of his testimony before parliament on issues related to the collapse of Silicon Valley Bank.