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GBP Weak Ahead of Data Deluge and Heightened UK Political Risks

GBP Weak Ahead of Data Deluge and Heightened UK Political Risks

Nick Cawley, Strategist

Talking Points

- Data and political risk cap any GBP upside for the time being with the next few days key.

- Retail traders remain short GBPUSD but outlook remains mixed.

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Sterling volatility is likely to ramp up over the next few days as a raft of highly significant UK data prints are released that will give investors a much better insight into how the UK economy is faring as it prepares to leave the European Union. And the release this week of the first of up to 12 official UK Brexit position papers may well trump the data deluge.

The latest UK inflation numbers are set to be released on Tuesday, August 15, and will provide a clear pointer towards the timing of the next move in UK interest rates. Inflation numbers for July are expected to nudge a fraction higher from last month’s levels – CPIH to 2.7% from 2.6%/Core CPI to 2.5% from 2.4% - providing the hawks on the MPC with further fuel for a rate hike this year. However with UK growth currently stuck in a rut at just 0.3%, the central bank will have to tread very carefully before ceding to the hawk’s demands in case they stifle any potential economic growth in the second half of the year.

I will be covering the UK Inflation Report Live tomorrow from 09.15 am. Please join me here.

On Wednesday, the latest labour market report is likely to see average earnings unchanged around 2%, leaving UK consumers further out of pocket. The unemployment rate is expected to be unchanged at 4.5% and despite being at a 40-year+ low, it is unlikely to feed through into wage inflation and will buoy the doves on the MPC to keep rates lower for longer.

DailyFX analyst and editor @MartinSEssex will be discussing the jobs data live. You can join him here.

Chart: GBPUSD Daily Timeframe (April – August 14, 2017)

GBP Weak Ahead of Data Deluge and Heightened UK Political Risks

Chart by IG

And it looks as though Brexit volatility is likely to increase as the UK government commences publishing up to 12 official Brexit position papers, from as early as Tuesday, August 15. In response to EU commentary that the UK is not fully prepared for leaving the EU, the UK government will outline their position on a number of potential divorce flashpoints, including the N Ireland border issue and the highly-charged ‘exit bill’ from the EU.

I covered all the upcoming data and releases in last Friday’s UK Week Ahead Webinar

Adding to the mixed outlook for GBP, the latest IG Retail Sentiment data shows that while investors remain short of GBPUSD, recent changes in net-positioning over the last day and week give muddy the outlook. Retail trader data shows 46.1% of traders are net-long with the ratio of traders short to long at 1.17 to 1. The number of traders net-long is 6.6% higher than yesterday and 9.9% higher from last week, while the number of traders net-short is 8.8% higher than yesterday and 6.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.

For the latest IG Client Sentiment indicators, click here

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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

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