What Changes Can We Expect to See vis-a-vis UK Investments and the GBP?
UK Economic Indicators and How They Are Affecting the GBP/USD
The sterling reversed course towards the end of the trading week on Friday, 22 July 2016. That the GBP dipped early on Thursday morning US time was somewhat concerning, given that the critical 1.32 support level was breached. The GBP/USD currency pair recently traded at a 31-year low in the post-Brexit aftermath when it traded at the 1.28 level. It has since recovered slightly to trade above 1.32, but remains in a tight trading range. Some of the most important upcoming UK economic indicators include the following:
- On Wednesday, 27 July 2016 the GDP growth rate quarter on quarter for Q2 will be released and the GDP growth rate year on year will be released.
- On Thursday, 28 July 2016 the GFK consumer confidence report for July will be released
- On Monday, 1 August 2016 the Markit/CIPS manufacturing PMI final figure for July will be released with a previous figure of 52.1 (figures above 50 are expansionary, while figures below 50 are contractionary)
- On Thursday, 4 August 2016, the Bank of England interest rate decision will be announced, followed by the Monetary Policy Committee meeting minutes, the Bank of England Monetary Policy Committee vote hike, the Bank of England quantitative easing decision, and the Bank of England inflation report
Upcoming UK Economic Indicators
For currency traders, the most important upcoming date is Thursday, 4 August 2016. If the Bank of England decides to adopt quantitative easing measures, this will adversely affect the value of the GBP/USD currency pair. The inflation report is also significant in that it will reveal whether the BoE is moving towards its inflation-targeted range. The commodity-price meltdown and weakness in Brent crude oil prices and WTI crude oil prices are playing havoc on inflation targets in the UK and elsewhere. Speculators will carefully be eyeing the upcoming economic data releases in July and early August as it pertains to the impact on the UK economy and the GBP/USD currency pair specifically.
Retail sales in the UK declined 0.9%, less than market consensus estimates. Additionally, public sector net borrowing (PSNB) improved by £7.3 billion, besting estimates. Across the Atlantic, US unemployment claims held steady at 253K, lower than market estimates. The only downside came in existing home sales which have shown a tendency to decline, close to 5.48 million new homes. In June, British retail sales declined by -0.9%, far greater than the -0.4% that was forecast. This is a direct result of the economic turbulence created by the Brexit vote. Naturally, the consumer confidence index readings have been negative after Britain voted to leave the European Union.
US Rate Hikes and IMF Opinion
The International Monetary Fund (IMF) has been equally bearish in its assessment of the impact on the European Union and the United Kingdom following the Brexit vote. Declines of 0.2% have been factored into the new UK growth prospects from 1.9% to 1.7%. Various credit ratings agencies such as Moody’s have warned of the dire consequences for the UK economy if an agreement isn’t worked out for the UK and the EU. There is a feeling that interest-rate hikes in the US are unlikely at this point in time. The volatility that financial markets are currently undergoing indicates that there is no appetite for higher interest-rates in the US just yet. Markets are mixed in their opinion on this issue with a probability of 47% for a rate hike in 2016.
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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.