Of Bulls & Bears: The GBP USD Pair
The tale of the GBP/USD currency pair is a woeful one. Over the past 1 year, this currency pair – the cable – has depreciated by 12.25%, and the 5-day performance is down 0.03%. The most important upcoming economic data release is the Super Thursday report by the Bank of England. The release of US jobs data on Friday, 27 January 2017 muted the lacklustre performance of US GDP growth for January. On Thursday, 2 February 2017 at 12 noon GMT, the Bank of England will make its interest rate decision. Super Thursday is an important day for the GBP/USD currency pair. The latest monetary policy announcement by the Monetary Policy Committee (MPC) quarterly inflation report will be announced. Presently, analysts are anticipating no changes to UK policy measures. The quarterly inflation report will likely result in Governor Mark Carney increasing his short-term prospects for inflation and growth in the United Kingdom.
Analysts undershoot performance of UK economy in Q4 2016
While analysts were anticipating Q4 2016 growth to be 0.5%, the actual results came in at 0.6% – besting forecasts and boosting the GBP. For G-7 economies, the UK was the fastest growing economy in 2016. This stands in sharp contrast to the performance of the GBP among the G10 currencies. The Governor of the Bank of England will likely express his reservations about overshooting inflation. Fortunately, the GBP has bounced off its 31-year lows against the greenback and this will provide additional wiggle room for the Bank of England. The currency pairs that will be affected by the Super Thursday meeting include the GBP/USD (the cable), the GBP/JPY and the EUR/GBP. Any positive sentiment for the UK’s economic performance will bring Sterling Bulls into the open.
Key Economic Data Releases this Week
The GBP/USD pair is likely to hold above the 1.2500 level, pushing towards 1.2720 as its next resistance point. This bullish bias is expected to continue for the final days of January 2017, and a tight trading range between 1.2500 and 1.2720 will likely ensue. This week will be dominated by Super Thursday announcements. These include the following key economic data releases on Thursday, 2 February 2017:
- Bank of England interest rate decision – expected to remain at 0.25%
- Monetary Policy Meeting Minutes of the BOE
- Bank of England quantitative easing expected to remain at £435 billion
- Bank of England Inflation Report
On Friday, 3 February 2017, the market/CIPS UK services PMI data for January will be announced. The forecast is 56, and the consensus among analysts is 55.8. Any figure above 50 is considered expansionary and good for growth. UK manufacturing and services data has largely been positive despite Brexit concerns.
Across the Atlantic in the United States, there are several important economic data releases as well. These include:
- The US Employment Cost Index Quarter on Quarter for Q4 2016 on Tuesday, 31 January 2017
- The US ADP Employment Change for January forecast at 172,000, with a consensus figure of 165,000 on Wednesday, 1 February 2017
- The ISM Manufacturing PMI for January forecast at 54.7 with a consensus of 55 on Wednesday, 1 February 2017
- The Federal Reserve Bank interest rate decision (federal funds rate) with no change expected on Wednesday, 1 February 2017
Any strength in US economic data will cancel out strength in UK economic data and vice versa. The currency pair will likely hold in a tight trading range for the remainder of the week.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.