Fundamental Forecast for GBP: Neutral

GBPUSD Analysis and Talking Points:

• Another critical week for UK politics to keep GBP pressured
• Strong UK data may boost the Pound as rate hike bets are increased

Brexit Overhang Weighs on Sterling

The overhang of Brexit continues to provide an uncertain outlook for the Pound. The initial response to PM May’s soft Brexit proposal had seemingly placed GBP on a firm footing. However, this was quickly reversal after the proposal led to the resignation of key MPs in PM May’s cabinet, most notably, Foreign Secretary Boris Johnson and Brexit Minister David Davis, consequently placing on Sterling as the risk of a no Brexit deal scenario had increased.

It will be another critical week for UK politics, as the customs and trade bills proposed in the White Paper will face a vote in parliament at the beginning of the week. The customs bill will likely face the hardest challenge of passing, given that Tory hard-liners have already touted several amendments for the bill.

Slew of UK Data Might Wake up GBP Bulls

A slew of key economic data points will be important in dictating the GBP price action in the upcoming week. The data will also be notable for the BoE in regard to their decision on whether to raise the rates at next month’s quarterly inflation report. UK data will kick off on Tuesday with the jobs report in which the earnings component likely to gain most attraction. The headline figure is expected at 2.5%, while the ex-bonus reading is seen dipped 0.1ppt to 2.7%. CPI figures will be released on Wednesday, whereby the yearly rate is seen up 0.2ppts to 2.6% and finally rounded off by the latest retail sales report.

A higher than expected reading across the UK earnings, inflation and retail sales data will likely provide ammo for the hawkish members on the Bank of England committee. Subsequently, advocating the case for a rate hike next month, which may boost the Pound as markets reprice an August rate hike. Currently, OIS markets are pricing in around a 67% chance of a 25bps rate hike to 0.75% in August.

Next week’s Economic Calendar

Source: DailyFX

GBPUSD PRICE CHART: DAILY TIMEFRAME (October 2017-July 2018)

Chart by IG

GBPUSD Technical Levels

A lack of selling interest below 1.3100, suggests that GBPUSD may well have based out from 1.3050-1.3100. RSI indicators signaling an upside bias which could see the pair make a test for weekly highs at 1.3360.