GBP/USD FUNDAMENTAL FORECAST: BEARISH
The British pound heads into a central bank fueled week relatively stout after the USD failed to capitalize on better than expected economic data (PPI and Michigan consumer sentiment) last Friday. This comes after robust labor data (NFP) and strong ISM services PMI data. It seems as if markets are holding off on this data in preparation for the plethora of data points scheduled next week – see economic calendar below. While there is much in the way of UK centric data, the U.S. core inflation read and Federal Reserve interest rate decision will likely be the focal point for global markets. The Fed has been divided by the aforementioned positive data and contrasting softer inflation without the guidance from Fed officials during this FOMC blackout period.
GBP/USD ECONOMIC CALENDAR
From a UK perspective, housing prices have been exhibiting a decline due to tightening monetary policy and with fiscal policy in line with the Bank of England (BoE), next week’s rate decision is likely to remain at the 50bps mark. Currently, money markets are in agreement with this conjecture with an almost 88% probability (refer to table below). The same is true for the Fed which leaves little in the way of a surprising announcement by either central bank. The Fed press conference will be take center stage with markets awaiting Fed Chair Jerome Powell’s statement. His prior statement mentioned moderating future rate hikes and was naturally taken in a dovish manner. The U.S. core inflation read could change this rhetoric should it beat estimates, highlighting inflationary pressures in the region and the need for tight monetary policies.
BANK OF ENGLAND INTEREST RATE PROBABILITIES
GBP/USD DAILY CHART