British Pound Heads into Critical Week - Could it Finally Bounce?

By DailyFx | August 15, 2014 AAA

DailyFX.com - British Pound Heads into Critical Week - Could it Finally Bounce?

British Pound Heads into Critical Week - Could it Finally Bounce?

Fundamental Forecast for Pound: Bullish

  • British Pound shows important risk of reversal, but these things need to happen first
  • Solid Q2 UK economic growth figures encouraging for GBP
  • For Real-Time Updates and Potential Trade Setups on the British Pound, sign up for DailyFX on Demand

The British Pound fell for the sixth-consecutive week, matching its longest streak since setting key lows near $1.43 in 2010. Yet there are signs that the move may be overdone, and key data ahead promises big moves for the GBP.

Upcoming UK CPI data could drive important volatility in the British currency. Analysts expect that the numbers will show inflation remained below the Bank of England’s official target, and indeed low price pressures have limited expectations of future BoE interest rate hikes. And indeed the bank’s recent Quarterly Inflation Report forced an important GBP sell-off as officials talked down the likelihood of tightening policy through the foreseeable future.

Expectations have fallen so much that any higher-than-expected CPI inflation figures could spark an important GBP bounce. The subsequent BoE minutes and Retail Sales figures are less likely to move markets but remain worth watching for potential surprises.

We thus head into a potentially pivotal period for the fast-falling British currency, and we have to go back to the heights of the global financial crisis in 2008 to find when the GBPUSD last fell for seven consecutive weeks. This fact in itself hardly guarantees that the Sterling could finally reverse, but we have seen concrete signs it may have set an important low through recent trading.

We’ll look to key economic data to act as the catalyst for big moves in the GBP. - DR

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