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GBP: UK Q2 GDP and Brexit to Drive Sterling Next Week

Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points:

  • ‘One and Done’ UK rate hike does little to support Sterling.
  • UK Q2 GDP growth may hit 0.4% Q/Q.

The DailyFX Q3 GBP Forecast is available to download.

We remain neutral on GBP for the week ahead but recognize that Brexit headlines and noise may move Sterling sharply in either direction, especially in a holiday-thinned market. So far, the EU has given no indication of being flexible towards the UK, repeatedly saying that their four pillars are sacrosanct, and that the UK must offer more before talks can press forward. In what is becoming a Brexit binary market, any good/bad news could well have an out-sized reaction, especially in a low volume, holiday-thinned market.

This week’s BoE meeting produced the expected 0.25% rate increase, but governor Mark Carney warned that future rate hikes will be gradual and limited. The next fully priced-in UK rate hike is now seen in September 2019. Post-BoE governor Carney agreed a good rule of thumb would be one rate hike per year although it will still depend on what happens during Brexit discussions.

Next Friday, a slew of 15 UK data releases at 08:30GMT includes the first look at Q2 UK GDP which is expected to nudge higher. The new monthly reading is expected at 0.2%, the quarterly figure at 0.4% from a prior quarter’s 0.2% while the annual figure is expected to show the economy growing at 1.3% against a prior 1.2%. If all these targets are hit, Sterling may receive a small fillip, but any misses would push GBP further lower.

DailyFX Economic Calendar for the week ahead. We will be taking a more in-depth look at UK data releases and asset markets on Monday at 10:30GMT during our UK Key Events and Markets Webinar.

GBPUSD continues to trade either side of 1.3000 and needs a stimulus to breakout from here. The downside still points to 1.29550 ahead of the August 2017 swing low at 1.27738, while a move higher will find resistance and the 20- and 50-day moving averages at 1.31262 and 1.32058 respectively. Th RSI indicator is pointing lower and nears oversold territory.

GBPUSD Daily Price Chart (February 2017 – August 3, 2018)

GBP: UK Q2 GDP and Brexit to Drive Sterling Next Week

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