GBP/USD Monthly Fundamental Forecast January 2016

Outlook and Recommendation

The GBP/USD closed 2016 at the bottom of its trading range after losing 3.89% in 2015. The pound ended at 1.4738. The strong Pound weighs on firms in the exporting sector.  Prospect of a first rate hike by the Bank of England next year (2017) makes the UK relatively less attractive for equity investors.  Analysts highlight the referendum on Britain’s EU membership as a key market risk for 2016; analysts think that voters will prefer the status quo.

At first glance, news that growth in the third quarter slowed to 0.5% and that the majority of incoming data for the last quarter 2015 disappointed market expectations, validates our sub-consensus forecast for the UK.

Yet, a closer look at the data so far available for the current quarter suggests that economic dynamics did not cool further compared with the pace reported for the third quarter. A GDP growth model derived from current quarter PMI values even hints at a 0.6% gain from the previous quarter, consistent with the three-month rolling estimate provided by NIESR, the National Institute of Economic and Social Research. The PMI model suggests that GDP growth picked up by probably as much as 0.2%.  The pound is expected to rebound from the recent lows in early January.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events Scheduled In January