GBP/USD, Pound Sterling Weekly Fundamental Forecast: Bearish
- Sterling unphased by UK inflation and retail data – bad news already priced in
- US PCE inflation data is due and both UK and US final GDP figures to have limited effect on the market, barring any drastic surprises
GBP/USD Daily Chart
Source: TradingView, prepared by Richard Snow
The pound had some rather tricky data prints to navigate this last week with UK inflation and retail data alongside Jerome Powell’s two-day testimony. Inflation needs no introduction as it is surging in major economies and printed in line with expectations at 9.1%, up 0.1% from the April print. Higher than expected inflation prints, at a time when members of the Bank of England (BoE) have seemed hesitant to hike at the same pace as the Fed, can have a negative effect on the pound as it worsens the ‘cost of living squeeze’.
On Friday, we saw disappointing UK retail sales data (-4.7%) even though expectations of a 4.5% contraction were already anticipated. Price action was rather unphased as the cost-of-living squeeze is priced in and such data prints line up with current GBP sentiment. Jerome Powell then spoke about monetary policy developments at length, adding that the soft landing that was initially hoped for will prove to be challenging.
Major Risk Events Next Week
Despite the number of high importance events on the calendar, some data prints aren’t anticipated to have a significant effect on GBP/USD like the final Q1 GDP provided the print is inline or near enough to the prior readings. Jerome Powell is due to speak once more on Wednesday.
Thursday sees the final GDP print for the UK where the same logic applies and we then we see PCE inflation data. Core PCE has actually eased in prior prints, something Powell does not see as a convincing indication that inflation is subsiding and has called for more conclusive data before the Fed can consider altering their current aggressive approach. Then on Friday we have US ISM manufacturing PMI data which is anticipated to print at 55 (indicative of an expansionary manufacturing sector but nearing that 50 mark).
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In the absence of positive GBP catalysts in the week ahead, there will be little to spur GBP/USD higher, apart from a weaker dollar. Therefore, the outlook for the pound leans more towards the bearish side.
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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