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British Pound Enters a Critical 10 Days – Can it Continue Higher?

Fundamental Forecast for British Pound: Bullish

The British Pound failed to trade above key price levels against the US Dollar for the second-consecutive week as key FX pairs traded in tight ranges. A big week of both UK and US economic event risk nonetheless points to bigger GBP/USD moves in the days ahead.

Traders initially sent the British Pound higher as Bank of England Meeting Minutes improved outlook for the future of domestic interest rates. And yet the Sterling failed to hold onto key highs versus the Greenback—continued failure at important congestion levels near $1.5650 leaves short-term risks to the downside. A later-week disappointment in UK Retail Sales figures thwarted the Sterling once again as it attempted to test fresh highs. Traders now look to upcoming UK GDP growth numbers for Q2 to drive volatility across key pairs.

Analysts expect that the UK grew at a robust 0.7 percent quarter-on-quarter pace through Q2, and such a result would quite likely support the case for higher domestic interest rates through the turn of the year. Risks might be weighed to the downside on any disappointments, and the following week’s highly-anticipated Bank of England meeting looms large on the horizon.

The Sterling remains attractive relative to most major counterparts as analysts predict that only the Bank of England and the US Federal Reserve will raise interest rates in the coming 12 months. This fact certainly hasn’t changed since last week, and yet the GBP’s inability to press to fresh highs versus the Euro, Yen, and other lower-yielding counterparts reminds us that these themes can take months to play out.

Whether or not it presses to fresh highs in the week ahead will likely depend on results from the highly-anticipated UK GDP report and a US Federal Reserve interest rate decision. Barring outright disastrous UK data, however, we remain constructive on the Sterling’s chances versus all majors except the US Dollar. - DR