The British Pound Is Unable to Resume Growth (Weekly Review)

2014-08-26
The past week can be called as crucial for the British pound. During the year, it has been growing actively with the support of macroeconomic statistics for the UK, which showed a strong recovery of the economy. Amid this background expectations of an earlier increase in interest rate by the Bank of England were increasing, making the pound attractive for buying, as the European Central Bank was easing monetary policy, and the US Federal Reserve System was tapering the QE3, but did not rush with an increase in interest rate. Thus, the prospects of the pound look brighter than the prospects for the euro and even the dollar, but in mid-July, the British currency began to fall within a downward correction.

Data on consumer inflation in the UK were released last week as well as MPC meeting minutes that could suspend a correction and return the pound on the way to grow. Nevertheless, the CPI was released at the level of 1,6% against the previous 1,9% and the forecast of 18%. Slowdown in the inflation along with the lack of growth of wages significantly reduced expectations of an increase in interest rate by the Bank of England, adding negative to the British currency. The MPC meeting minutes as the last hope of the "pound bulls" showed that two members of the Committee for the first time over a long period of time voted for a rate hike. This triggered growth of the pound. However, other members of the Committee are convinced that low inflation is not a sufficient reason to raise rate. Besides, there are still not any votes in favor of reducing volume of the asset purchase programme.

As a result, growth of the pound was short-lived, and after testing 1.6678 the pair fell to 1.6563. Thus, a downward correction of the British currency could well turn into a downtrend, confirming a breakout of the support around the 67th figure and inability of the pound to be back and to consolidate above it. In contrast to the pound, the US dollar was able to get support from FOMC meeting minutes, which was more "hawkish" than had been expected by market participants. 

Planned for today:

Monday, 25th August

08:00 GMT- Germany. German IFO - Business Climate;
08:00 GMT- Germany. German IFO- Business Expectations;
08:00 GMT- Germany. German IFO - Expectations;
13:45 GMT- USA. Markit US Services PMI;
13:45 GMT- USA. Markit US Composite PMI;
14:00 GMT- USA. New Home Sales (MoM) (JUL);
23:45 - New Zealand. Trade Balance (MoM, y/y).

Tuesday, 26th August

12:30 GMT- USA. Durable Goods Orders;
12:30 GMT- USA. Durables Ex Transportation;
13:00 GMT- USA. House Price Index (MoM);
14:00 GMT- USA. Consumer Confidence.

Wednesday, 27th August

06:00 GMT- Switzerland. UBS Consumption Indicator;
06:00 GMT - Germany. Gfk Consumer Confidence;
23:50 GMT- Japan. Japan Buying Foreign Bonds;
23:50 GMT- Japan. Foreign Buying Japan Stocks.

Thursday, 28th  August

01:35 GMT - Japan. Nomura/ JMMA PMI Manufacturing;
07:55 GMT- Japan. Unemployment Change;
07:55 GMT- Germany. Unemployment Rate;
12:00 GMT- Germany. CPI (MoM, y/y);
12:00 GMT- Germany. Harmonized CPI (MoM, y/y);
12:30 GMT- USA. Gross Domestic Product Price Index;
12:30 GMT- USA. Initial Jobless Claims;
23:05 GMT- UK. Gfk Consumer Price Index;
23:30 GMT- Japan. National Consumer Price4 Index (y/y);
23:30 GMT- Japan. Unemployment Rate;
23:50 GMT- Japan. Retail Sales (MoM, y/y);
23:50 GMT- Japan. Industrial Production (MoM, y/y).

Friday, 29th August

05:00 GMT- Japan. Housing Starts (q/q);
09:00 GMT- Eurozone. Consumer Price Index (q/q);
09:00 GMT- Eurozone. Core Consumer Price Index (q/q);
09:00 GMT- Eurozone. Unemployment Rate;
12:30 GMT- Canada. Annual GDP (q/q);
12:30 GMT- USA. Personal Consumption Expenditure Core (y/y);
13:55 GMT- USA.  Reuters/Michigan Consumer Price Confidence.

This week, a macroeconomic calendar does not contain any important events that could deploy the pound, so pressure on it might be kept. Annual GDP data will be of great importance for the US dollar, while the data on consumer inflation in the euro area and Japan will be important for the euro and the yen.


Author: Anthony Porter, IAFT Analyst

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