Fundamental Forecast for GBP: Neutral
Sterling (GBP) Talking Points:
- Bank of England take center stage on Thursday.
- Brexit ‘noise’ dies down for now.
The DailyFX Q3 GBP Forecast is available to download.
Fundamental Forecast for GBP: Neutral
We remain neutral on Sterling for the next week as the Bank of England releases its latest monetary policy announcement with growing expectations of a 0.25% rate hike. The market probability of a rise is around 80%, yet GBP has had a poor week so far, especially against a strong US dollar. A rate hike and a slightly more hawkish QIR should underpin Sterling – ex-US dollar - at these levels and leave room for a move higher. GBPUSD currently trades at 1.3090 with a break and close below 1.3027 opening the way to larger move down to 1.2740 the late-August 2017 low.
UK inflation printed at 2.4% in June 0.1% below the BOE’s expectation, while core inflation fell to 1.9%, from 2.1% in May. The QIR and MPC report will be closely parsed for any change in both GDP and inflation guidance and Sterling is more likely to react to these forecasts than to any change, or not, in base rate.
The latest round of Brexit talks bought nothing new this week, apart from UK PM Theresa May saying that she would be taking the lead role, with the UK’s recent White Paper bringing a familiar, dismissive, response from EU negotiator Michael Barnier. With time running out before the important October meeting, progress needs to be made quickly to prevent the UK from falling out of the EU without a trade agreement, a situation that neither gains from or wants.
DailyFX Economic Calendar for the week ahead. We will be taking a more in-depth look at UK asset markets on Monday at 11:30 at our UK Key Events and Markets Webinar.
A potential bear pennant is seen on the GBPNZD daily chart – starting on July 18, and a break lower could see the pair move back towards congestion around 1.9050 – 1.1900 (using the July 17 bearish candle as the flagpole). A move lower would also see the pair trade below all three moving averages, another bearish indicator.
GBPNZD Daily Price Chart (August 2017 – July 20, 2018)
Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.
--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
Follow Nick on Twitter @nickcawley1
