GBP/USD Monthly Fundamental Forecast July 2012

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Outlook and Recommendation

The GBP/USD closed the month at 1.5703

Highest: 1.5778

Lowest: 1.5268

Difference: 0.0510

Average: 1.5550

Change %: 1.99

With the US in risk aversion safe haven mode all month, it was difficult for any of its trading partners to mount any momentum. Sterling retraced 2% of its spring losses in June and has stabilized into July, even as the BoE initiated another round of asset purchases, bringing the total size of the program to £375bn. As we look out to quarter end, we expect GBP to retrace more of its spring losses as it benefits from flows driven from its triple-A status and intra-European diversification. The CFTC reports that net position on GBP is flat; while technicals suggest the currency is likely to trade within a range.

The UK economic outlook weakened further over the last month, and we have lowered our growth forecast through 2013. The final estimate of first quarter GDP was revised down, from -0.1% y/y to -0.2%. We now expect a negative GDP print in the second quarter (given the drag from a lost working day and abnormally poor weather), implying average growth of 0.2% in 2012 and 1.5% in 2013. The domestic recovery is being obstructed by spillovers from the euro zone crisis, with sapping confidence affecting the real economy. The closely watched PMIs have deteriorated anew, with the manufacturing and construction indices dropping below the neutral 50-mark, and the services PMI reaching its lowest level since October. The outlook (including the inflation picture) has weakened enough to prompt the monetary and fiscal authorities to step in with more accommodative policy. The Mansion House speech in mid-June included a joint government-Bank of England (BoE) scheme known as “funding for lending”, whereby banks will be provided with multi-year funds (as much as GBP 80 billion) at below market rates, conditional on them subsequently lending to the non-financial sector. The BoE then announced an expansion of its quantitative easing (QE) program with an additional GBP 50 billion in bond purchases, bringing the total to GBP 375 billion

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.

Central Bank Name: Bank of England

Date of next meeting or last meeting: Jul 05

Current Rate: 0.50 % (- 0.50) at the time of this writing the BoE met and held rates.

Statement highlights of last meeting:The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%.  The Committee also voted to continue with its program me of asset purchases totaling £325 billion financed by the issuance of central bank reserves. The previous change in Bank Rate was a reduction of 0.5 percentage points to 0.5% on 5 March 2009.  A programme of asset purchases financed by the issuance of central bank reserves was initiated on 5 March 2009.  The previous change in the size of that programme was an increase of £50 billion to a total of £325 billion on 9 February 2012.

Economic events for the month of July affecting EUR, CHF and GBP

Date

Currency

 Event

Forecast

Previous

Mon

Jul 2

CHF

Retail Sales y/y

0.9%

0.1%

GBP

Manufacturing PMI

46.7

45.9

Tue

Jul 3

GBP

Construction PMI

53.1

54.4

Wed

Jul 4

GBP

Services PMI

53.0

53.3

Thu

Jul 5

GBP

Asset Purchase Facility

375B

325B

 

GBP

Official Bank Rate

0.50%

0.50%

EUR

Minimum Bid Rate

0.75%

1.00%

EUR

ECB Press Conference

   

Fri

Jul 6

CHF

Foreign Currency Reserves

 

303.8B

CHF

CPI m/m

-0.3%

0.0%

GBP

PPI Input m/m

-2.1%

-2.5%

Tue

Jul 10

GBP

Manufacturing Production m/m

 

-0.7%

Tue

Jul 17

GBP

CPI y/y

   

EUR

German ZEW Economic Sentiment

   

ALL

G7 Meetings

   

GBP

BOE Inflation Letter

   

Wed

Jul 18

GBP

Claimant Count Change

   

GBP

MPC Meeting Minutes

   

GBP

Public Sector Net Borrowing

   

Thu

Jul 19

GBP

Retail Sales m/m

   

Mon

Jul 23

GBP

Prelim GDP q/q

   

Wed

Jul 25

EUR

German Ifo Business Climate

   

 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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