GBPUSD talking points:
- UK Chancellor of the Exchequer Philip Hammond presents his Spring Statement on Tuesday and the accompanying economic forecasts could determine the future direction of GBPUSD.
- UK interest rates will remain on hold next week but market pricing suggests around a 70% chance of a rate increase in May as Brexit fears recede.
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Hammond’s Spring Statement in focus
UK Chancellor of the Exchequer Philip Hammond presents his Spring Statement to Parliament on Tuesday and, while it is likely to be a low-key affair, the accompanying economic forecasts from the independent Office for Budget Repsonsibility could help set the future direction of GBP.
Hammond is not expected to change his tax and spending plans significantly and may only speak for 15 to 20 minutes. However, the OBR is due to present its latest economic and fiscal forecasts and the tone of its report could well be more upbeat, with the UK economy seemingly in better shape and public borrowing set to undershoot its previous forecasts amid generally less pessimistic sentiment about Brexit.
For GBPUSD, this could be modestly bullish.
GBPUSD Price Chart, Daily Timeframe (December 10, 2017 – March 12, 2018)
Chart by IG
Technical outlook for GBPUSD
From a technical viewpoint, upwardly revised growth forecasts could lift GBPUSD closer to the downward sloping trendline on the daily chart currently just below 1.40. However, if the OBR decides to leave its predictions unchanged, a dip to support at the trendline connecting the recent rising lows, now close to 1.38, is feasible.
Of the two, a rally towards 1.40 seems rather more likely as hopes climb of a beginning of the end of austerity.
Bank of England meets next week
The Bank of England’s rate-setting monetary policy committee meets next week and market pricing suggests a probability of less than 10% that it will tighten policy then. However, the chances of a rate increase in May have risen to almost 70% and they could rise even further if the OBR is more optimistic about the economy.
With UK inflation at 3%, well above the government-set target of 2%, the MPC members could well decide that another rate increase is called for.
IG Client Sentiment
Meanwhile, there is no clear picture in the latest IG Client Sentiment figures. Retail trader data show 50.8% of traders are net-long GBPUSD, with the ratio of traders long to short at 1.03 to 1. The number of traders net-long is 15.6% higher than yesterday and 3.9% lower from last week, while the number of traders net-short is 2.5% lower than yesterday and 7.2% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.
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--- Written by Martin Essex, Analyst and Editor