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British Pound Looks Higher Ahead of 2Q GDP as BoE Votes Unanimously

British Pound Looks Higher Ahead of 2Q GDP as BoE Votes Unanimously

2013-07-19 21:21:00
David Song, Strategist
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British_Pound_Looks_Higher_Ahead_of_2Q_GDP_as_BoE_Votes_Unanimously_body_Picture_1.png, British Pound Looks Higher Ahead of 2Q GDP as BoE Votes Unanimously

British Pound Looks Higher Ahead of 2Q GDP as BoE Votes Unanimously

Fundamental Forecast for the British Pound: Bullish

The British Pound extended the rebound from 1.4812 as the Bank of England (BoE) Minutes showed a unanimous vote to retain the current policy in July, and the sterling may track higher in the week ahead as the U.K. economy is expected to expand at a faster pace during the three-months through June. Indeed, the advance GDP report for the U.K. is expected to show the growth rate expanding another 0.6% in the second quarter, and the faster rate of growth should heighten the appeal of the British Pound as it dampens the BoE’s scope to expand the balance sheet further.

Although the BoE pledged to implement a ‘mixed strategy’ for monetary policy, it seems as though we will see the Monetary Policy Committee preserve its wait-and-see approach as they anticipate a stronger recovery in the second-half of the year, and we may see the central bank slowly move away from its easing cycle as growth prospects improve. Despite speculation of seeing the MPC adopt a growth target, it seems as though the majority will continue to support the inflation-targeting framework as the central bank failed to achieve the 2% target since 2009, and the committee may look to switch gear later this year in an effort to boost central bank credibility. As price growth is expected to hold above the 2% target over the policy horizon, the committee may lay out a more detailed exit strategy in the coming months, and Governor Mark Carney may merely rely on central bank rhetoric to combat the downside risks surrounding the U.K. as the region gets on a more sustainable path. In turn, the shift in the policy outlook should help to encourage a more meaningful rebound in the GBPUSD, and the British Pound may continue to retrace the decline from June should the fundamental developments coming out of Britain curb bets for more quantitative easing.

As the GBPUSD clears the 50.0% Fibonacci retracement from the 2009 low to high around 1.5270, we may see a move back towards the 38.2% retracement (1.5680-90), and it seems as though there’s an upward trending channel taking shape as the pair continues to find support around the 61.8% Fib (1.4855). However, the British Pound may struggle to hold its ground next week should the 2Q GDP report fall short of market expectations, and we may see the GBPUSD face range-bound prices over the near-term should we see renewed bets for additional monetary support. - DS

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