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GBP Rally Possible as UK Rate Prospects and Football Boost Confidence

GBP Rally Possible as UK Rate Prospects and Football Boost Confidence

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

- A further rally in GBPUSD looks possible as England progress in the football world cup and the chances of a UK rate rise next month increase.

- However, this weekend’s UK government meeting on Brexit could dampen spirits.

Our trading forecasts for Q3 have just been published; you can find the GBP guide here.

And check out the IG Client Sentiment data to help you trade profitably.

Football and rates in focus

The progress of the England football team in the FIFA World Cup looks set to boost sentiment in the UK, potentially boosting consumer confidence and spending, the UK economy and the British Pound.

The team will play Sweden on Saturday in the quarter finals, having reached that stage of the competition for the first time since 2006 by beating Colombia on penalties, thereby ending a long run of penalty shootout failures. England last won the World Cup in 1966 and has struggled since then.

This has boosted confidence in England and could lead to an increase in consumer confidence, spending in the High Street, the UK economy and GBPUSD even if the team loses on Saturday – the currency having already begun to creep higher.

GBPUSD Price Chart, Daily Timeframe (Year to Date)

Latest GBPUSD price chart.

Chart by IG

At the same time, a series of buoyant purchasing managers’ indexes for the UK has increased the chances of a quarter-point rate increase to 0.75% by the Bank of England’s monetary policy committee when it next meets on August 2, also potentially a positive factor for GBPUSD.

The overnight index swaps market is currently suggesting a probability of 59.3% for such a hike.

Latest UK rate hike probability.

Source: Thomson Reuters

Brexit meeting in focus

The potential downside for GBP lies in Friday’s meeting of the UK cabinet at Prime Minister Theresa May’s Chequers retreat to discuss Brexit. A customs union with the EU and the future of the Northern Ireland border will top the agenda, potentially highlighting cabinet splits.

May has set out the terms of a customs plan that would allow the UK the freedom to set its own tariffs on goods coming into the country after it leaves the EU, the BBC reported Thursday. Meanwhile, Jaguar Land Rover has warned that a bad Brexit deal would hit its profits and threaten £80 billion of investment plans for the UK.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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