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British Pound: Due For a Deeper Correction Lower

British Pound: Due For a Deeper Correction Lower

2017-05-12 01:26:00
Martin Essex, MSTA, Analyst
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British Pound: Due For a Deeper Correction Lower

Fundamental Forecast for GBP: Bearish

  • The British Pound hasn’t got a lot going for it at the moment, with the latest economic data weak and monetary policy on hold for the foreseeable future.
  • Moreover, plenty could go wrong as the UK general election campaign hots up.
  • Check out the DailyFX Economic Calendar and see what live coverage of key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

Data on the UK economy released last Thursday were uniformly weak, with industrial production, manufacturing output, trade and construction figures all coming in lower than economists had predicted. In addition, the Bank of England said the same day that it may need to raise interest rates before late 2019 – positive for the British Pound in theory but actually negative because many market participants were expecting an increase before then.

The near-term outlook for GBP is therefore none too rosy, with politics also a concern. Ahead of the general election on June 8, Prime Minister Theresa May’s market-friendly ruling Conservatives have a large lead in the polls, with the latest from YouGov for The Times newspaper showing them ahead of the opposition Labour Party by a thumping 16 percentage points. However, that could easily be reduced as the election approaches, prompting market jitters.

Brexit also remains in the background, with the potential to blow up at any time if one side or the other makes an ill-timed comment.

As for the future, the week ahead is packed with important data releases, including the consumer and producer price indexes on Tuesday, unemployment and earnings on Wednesday, retail sales on Thursday and the Confederation of British Industry’s industrial trends survey on Friday.

This could all potentially weaken the Pound, which has had a good run of late, despite some weakness over the last few days, and could be due for a deeper correction.

Chart: GBP/USD Daily Timeframe (January 1, 2017 to May 12, 2017)

British Pound: Due For a Deeper Correction Lower

Chart by IG

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

What will drive the British Pound and all other currency majors in 2017’s second half? Check out the freeDailyFX Quarterly Forecasts

If you’re looking for ideas more short-term in nature, check out the IG Client Sentiment Data

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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