British Pound pulls back from session highs as BoE Bailey tames rate hike hopes

• GBP/USD retreats to 1.3520 from session highs near 1.3550 and turns negative on daily charts.
• BoE Bailey calls for flexibility on monetary policy and cools hopes of a September rate hike.
• On Thursday, BoE's Pill reiterated the need to hike the Bank Rate to 4%.

The British Pound (GBP) has retreated from session highs just below 1.3550 against the US Dollar (USD) during the London trading session, returning to levels near 1.3520 and turning negative on the daily chart. Bank of England (BoE) Governor Andrew Bailey called for flexibility on monetary policy, cooling hopes for an interest rate hike at September's monetary policy meeting.

Bailey defended at a conference hosted by the London School of Economics that the bank has the responsibility to keep inflation anchored, but that policymakers “do exercise choice on how fast to bring inflation back to target”.

Beyond that, the BoE Governor suggested that he understands the Federal Reserve (Fed) Chair, Kevin Warsh’s reluctance to provide forward guidance, as, he stated, central banks need to preserve flexibility in responding to changing economic and inflation conditions, rather than committing to a predetermined rate path.

BoE Pill’s hawkish comment boosted the British Pound on Thursday

Previously, the Pound had rallied against its main peers, as BoE Committee member Huw Pill reiterated his call to hike the BoE’s Bank Rate to 4%, at a roundtable in the Edinburgh Chamber of Commerce. Pill affirmed that “clear, prompt and decisive policy action and communication would help steer markets and reduce uncertainty.”

"Raising the bank rate on this basis doesn’t signal prolonged aggressive hikes," according to Pill, who added that a prompt increase in interest rates might “head off some potential insidious catch-up dynamics.”

The main focus on Friday, however, is in the US, where the Bureau of Labour Statistics will release August’s Nonfarm Payrolls (NFP) report. The US economy is expected to have created 56K new jobs last month following an unexpected 23K drop in July. This time, however, the impact of the release in the US Dollar is likely to be softer than usual, as investors await next week's Consumer Price Index (CPI) figures to assess the chances of a rate hike at the Fed meeting on September 15 and 16.