Fundamental Forecast for British Pound: Bullish
- British Pound may be at risk versus the US Dollar as it stops and reverses at key technical resistance
- Longer-term technical patterns nonetheless suggest the GBP may consolidate before larger move higher
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The British Pound surged and finished as top-performing G10 currency through Friday’s close, but a late-week US Dollar rebound suggests that the next GBP/USD move could actually be lower despite broader Sterling gains.
Bank of England Governor Mark Carney sent domestic interest rates notably higher as he said the Monetary Policy Committee could raise rates before year-end, and the yield-sensitive GBP saw its largest single-day gain on the month as traders repriced odds. The unexpected commentary from the head of the BoE will make it especially important to watch the coming week’s release of Bank of England Meeting Minutes; we may need to see official commentary from the July 9 rate decision match the relatively hawkish rhetoric from Governor Carney.
Recent GBP gains arguably leave risks to the downside ahead of the Bank of England report as well as later-week UK Retail Sales figures; it would likely take strongly positive results out of either/both to spark continued gains. And indeed a late-week US Dollar surge left the GBP/USD just barely higher through Friday’s close as its stop-and-reverse at key technical resistance leaves the pair at risk of near-term weakness.
The fact nonetheless remains that the GBP looks attractive versus most major counterparts as traders predict that only the Bank of England and the US Federal Reserve will raise interest rates in the coming 12 months. In trading there are only two factors that truly matter: Price and Time. We believe the British Pound stands to continue higher versus the Euro, Yen, and most majors except the US Dollar as the GBP represents value in terms of Price. The key question is whether now is a good Time to go long, and the coming week’s BoE Minutes may go a long way in giving us an answer. - DR
