GBP/USD Fundamental Forecast – February 1, 2016

The GBP/USD tumbled 60 points to trade at 1.4301 as the dollar rebounded today. The outlook for the pound is closely related to the probability of monetary policy tightening by the Bank of England, Hammer noted. “However, both low inflation and signs it will be some time before inflation rises towards the Bank of England target have clearly postponed any action from the Bank of England until 2017. This could potentially contribute to further GBP weakness in coming months. The referendum on EU membership has also created political uncertainty and is negative for the currency,” he said.
Sterling rallied in response; it appears, to as expected Q4 GDP.  The 0.5% expansion compares with 0.4% in Q3.  Although many, like ourselves, feared the UK economy lost momentum in the second half of last year, it is not to be found in yesterday's report.  However, we the slowing is evident is in the year-over-year pace.  It slowed to 1.9% from 2.1%, the slowest pace in three years.  Moreover, the growth was confined to services, with the other sectors contracting.
Sterling's gains Thursday leaves it within the weekly ranges.  In fact, if today's high holds near $1.4345, it is the second day of lower highs.  A two-week high was recorded on Tuesday just below $1.4370.  The intraday technicals warn that if sterling has not peaked for the day, it has likely come very close.

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