The British pound has headed lower in the Tuesday session, erasing most of the gains seen on Monday. In North American trade, GBP/USD is trading at 1.4162, down 0.48% on the day. In the UK, the Financial Policy Committee released the minutes of its March meeting. In the US, CB Consumer Confidence dropped to 127.7, missing the forecast of 131.2 points. As well, the Richmond Manufacturing Index dropped sharply to 15 points, well off the estimate of 23 points. On Wednesday, the US releases Final GDP and the UK publishes CBI Realized Sales and GfK Consumer Confidence.
The Financial Policy Committee (FPC), which looks at the financial stability in the UK, took note of the likelihood of rate hikes during the year. In the minutes, policymakers stated that most households can afford their mortgages at current rate levels of 0.50%, but would have trouble if rates climbed to 2% or higher. The BoE is widely expected to raise rates by a quarter point in May, to 0.75 percent. Years of low rates have resulted in high levels of mortgage debt as well as consumer debt, and the FPC minutes are a clear signal that the BoE will need to factor in the impact on consumers as part of its rate policy.
The tariff spat between China and the US has shaken up global stock markets and also caused volatility in the currency markets. The US dollar lost ground after President Trump slapped stiff tariffs on Chinese products last week. However, fears of a global trading war which could spark a worldwide recession have eased this week, and the US dollar is higher, as investor risk appetite has improved. This follows the Chinese decision to file applications with the World Trade Organization regarding the tariffs, a move which could lead to an amicable resolution of the tariff spat between the two largest economies in the world.