The British Pound saw its worst single-week decline in at least 10 years, as a clear deterioration in Bank of England interest rate forecasts doomed the Sterling to tumbles against major forex counterparts. Indeed, the Sterling lost for an incredible 11 consecutive trading days into Friday’s close—its worst losing streak in at least 20 years. We believe that the GBPUSD may rally through short-term trade, but such an outlook will depend on whether several key economic reports fall in the Sterling’s favor.
[B]Fundamental Outlook for British Pound: Bearish[/B]
- British Pound Breaks Key Support Despite Strong CPI Release
- GBPUSD Continues Plummet on Bank of England Economic Outlook- Overnight Index Swaps Price in 75 Basis Points of BoE Cuts
The British Pound saw its worst single-week decline in at least 10 years, as a clear deterioration in Bank of England interest rate forecasts doomed the Sterling to tumbles against major forex counterparts. Indeed, the Sterling lost for an incredible 11 consecutive trading days into Friday’s close—its worst losing streak in at least 20 years. We believe that the GBPUSD may rally through short-term trade, but such an outlook will depend on whether several key economic reports fall in the Sterling’s favor.
Forecasts for the British Pound will definitely depend on the coming days’ Bank of England Minutes, UK Retail Sales report, and a second revision to domestic Gross Domestic Product data. Wednesday’s BoE minutes will tell traders how bank officials voted in their most recent decision to keep rates unchanged, and any surprises could easily force sharp moves in the GBP. This past week’s Quarterly Inflation Report showed that officials believe inflation will moderate considerably through 2009—adding fuel to speculation that the bank will soon begin cutting interest rates in order to bolster growth. Yet any signs that individual members favored higher rates could force significant shifts in rate expectations and similarly sharp corrections in the GBPUSD.
The following day’s Retail Sales report will likewise draw close scrutiny from GBP traders, as markets will pay close attention to whether consumers resumed spending following a 3.9 percent plummet in sales through the month of June. Prospects for household spending remains dim on news that Nationwide Consumer Confidence numbers fell sharply through the month of July. Any positive surprises in the Retail Sales report would likely bring a short-term relief rally to the British Pound, while disappointments are arguably less likely to elicit strong price moves. The week of event risk will be rounded out with Friday’s second revisions to second quarter GDP numbers. Analysts predict that GDP grew at a slower pace than previously reported. As with our outlook for the Retail Sales report, however, we believe that the GBPUSD is only likely to react strongly to positive surprises in the GDP release. - DR