GBP/USD Outlook Mired by Cautious BoE Rhetoric, Brexit Uncertainty
British Pound Talking Points
The British Pound struggles to hold its ground as fresh developments coming out of the U.K. economy dampen bets for an imminent Bank of England (BoE) rate-hike, and GBP/USD may continue to consolidate over the remainder of the week amid the uncertainty surrounding Brexit proposal.
GBP/USD Outlook Mired Cautious BoE Rhetoric, Brexit Uncertainty
Despite the 137K expansion in U.K. employment, the updates instill a mixed outlook for the economy as Average Weekly Earnings narrows to 2.5% per annum from a revised 2.6% in April, while claims for unemployment benefits increase 7.8K in June. Moreover, updates to the Consumer Price Index (CPI) may offer little relief even though the headline reading is expected to pick up in June as the core rate of inflation is anticipated to hold steady at 2.1% for the third consecutive month.
Lackluster data prints paired with concerns surrounding Prime Minister Theresa May’s leadership may continue to drag on GBP/USD as BoE Governor Mark Carney warns failure to reach a deal with the European Union (EU) may trigger a ‘financial stability event,’ and the majority of the Monetary Policy Committee (MPC) may stick to the wait-and-see approach at the next quarterly meeting on August 2 as the central bank head warns ‘moving from the situation of an integrated market to a much less integrated system, with some financial consequences on top, would be a hit to the economic performance.’
With that said, the recent rebound in GBP/USD may continue to unravel as the developments sap bets for an imminent BoE rate-hike, and recent price action warns of keeps the broader outlook tiled to the downside as the pair pulls back ahead of the monthly-high (1.3363), while the Relative Strength Index (RSI) continues to track the bearish formation from earlier this year.
GBP/USD Daily Chart
- GBP/USD may continue to trade within the monthly range following the failed attempt to test the June-high (1.3473),with the near-term outlook still capped by the 1.3370 (78.6% expansion) hurdle.
- Lack of momentum to retain the recent series of higher highs & lows brings the 1.3090 (38.2% retracement) region on the radar as it largely lines up with the monthly-low (1.3095).
- Need a break/close below the stated region to open up the downside targets, with the first region of interest coming in around 1.2950 (23.6% expansion) followed by the 1.2800 (50% expansion) handle.
For more in-depth analysis, check out the Q3 Forecast for the British Pound
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--- Written by David Song, Currency Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.