The Great Britain pound experienced weakness last week, faltering after an impressive rally versus the US dollar. This week is full of important events and may determine the performance of the sterling in the near future.
The major reason for the currencyâs weakness was the Inflation Report released by the Bank of England, which damped hopes for an early interest rate hike. The BoE will release minutes of its last monetary policy meeting on May 21. While they may provide an interesting insight in the plans and the outlook of British policy makers, it is unlikely that the minutes will reveal anything radically different from the comments that market participants have already heard.
As for macroeconomic releases, the Consumer Prices Index (released on May 20), retail sales data (released on May 21) and the second estimate of gross domestic product (released on May 22) should be most important. Inflation is expected to stay little changed at 1.7 percent and the GDP figure should remain at 0.8 percent, unchanged from the first estimate. Analysts predict that retail sales will show 0.4 percent growth in April, up from 0.1 percent in March. All in all, the outlook for economic data looks positive but not particularly impressive.
Can the optimistic outlook for the British economy help the sterling to reverse its losses? Telling the truth, it is not likely without any major positive surprise from reports, and experts predict none. Traders have already decided that the BoE is not going to change its monetary policy anytime soon and it will be hard to convince them otherwise. It will be hard for the pound to recover without changing this view.
DailyFX agreed that this week should be important for the future of the UK currency and issued a bearish outlook, saying:
Itâs shaping up to be an important week for the previously high-flying GBP. And though it remains relatively close to multi-year peaks, continued failure at these levels suggests that the uptrend may be over.
Forex Crunch says it is bullish on GBP/USD, but this can be a mistake as the site provides arguments that favor bearish thinking:
After coming within a whisker of the 1.70 level, the pound has not looked strong against the dollar. A hike in interest rate levels by the BOE would be bullish for the pound, but the Bank has done its best to dampen speculation about a rate hike. In the US, key indicators continue to point upwards, and the Fed is likely to continue trimming QE, which is a vote of confidence in the health of the US economy.
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