gbp fundamentals

British Pound Could Break Above 1.7950 On UK CPI, BOE Minutes

Friday, 12 September 2008 23:46:01 GMT  |  Terri Belkas, Currency Strategist

There was little in the way of UK data last week, but lately, it’s fair to say that most indicators have been disappointing. Indeed, there’s no doubt in anyone’s mind that the Bank of England is in a very tough spot at this juncture, as the UK economy teeters on the brink of recession while inflation pressures remain strong.

British Pound Could Break Above 1.7950 On UK CPI, BOE Minutes

Fundamental Outlook for British Pound: Bullish

- UK producer output prices fell by the most since record-keeping began in 1986
- Nevertheless, UK inflation expectations hit a record high of 4.4%
- The British pound finally surged at the end of the week, as predicted by DailyFX Analysts

There was little in the way of UK data last week, but lately, it’s fair to say that most indicators have been disappointing. Indeed, there’s no doubt in anyone’s mind that the Bank of England is in a very tough spot at this juncture, as the UK economy teeters on the brink of recession while inflation pressures remain strong. That doesn’t mean the British pound can’t gain in these circumstances though, as the overextended decline in the currency finally started to correct. According to the latest FXCM SSI numbers, GBP/USD shorts jumped 16 percent on Friday, and as a contrarian indicator, the data signals additional gains.

Nevertheless, the British pound faces hefty event risk this week. On Tuesday, UK CPI is expected to accelerate even faster to a 4.6 percent annual pace, which would mark the sharpest rise since May 1992. On Wednesday, the Bank of England’s meeting minutes - a huge market-mover for the British pound - will hit the wires and could show yet another split vote and biased commentary. Finally, on Thursday, UK retail sales are forecasted to fall 0.5 percent, dragging the annual rate to a more than two year low of 1.6 percent and adding to the pile of evidence signaling a potential recession. Like the euro, though, the British pound’s next move will depend more upon shifts in the interest rate outlooks for the US dollar and British pound.


Written by Terri Belkas, Currency Strategist of DailyFX.com
E-mail: tbelkas@dailyfx.com

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