GBP/USD Weekly Fundamental Analysis September 17-21, 2012, Forecast

Introduction:  While the ranges are wider (and so should stops be), the lines are rather distinctive, especially towards the borders of the long term wide range. This pair makes for good trades, with the new austerity program implemented in the UK, the GBP is moving more on Fundamentals now.

• The interest rate differential between the Bank of England(BoE) and the Federal Reserve
• High yield and attractive growth in the UK drives GBP/USD higher

Weekly Analysis and Recommendation:

The GBP/USD ended the week at 1.6214 surprising most investors as markets did not think that the poor UK fundamentals would allow the pound to gain this much strength against the weakened USD

New developments in US markets will seem counter-climatic to the past week, and most of the focus will likely remain upon the aftermath of the Fed’s policy easing especially in terms of whether a broadly based rally in risk assets proves to be durable given other global developments.  Following the introduction of QE3 via non-sterilized purchases of mortgage backed securities combined with a continuation of operation ‘twist’ and pushing off expected rate hikes until  mid-2015 at the earliest, there are no fewer than 10 Fed speakers on the calendar over the week ahead as the black-out period on Fed communications lifts. 

Expect UK CPI and RPI inflation to remain unchanged in August at 2.6% y/y and 3.2%, respectively. These estimates are slightly above consensus expectations for moderate decelerations. Although we are on the high side of consensus, we could easily aim a little higher, as there is room for a bigger surprise. Among the likely key influences are: petrol prices, which gained roughly 2.5%, m/m in the month; clothes price inflation, which will likely snap higher, reversing the deeper (and earlier) than usual summer discounts; and airfares, which should see some payback for a very big increase in the previous month. More generally, we have seen upward surprises pretty much everywhere in the euro zone in August. Energy prices have played a role.

For now we don’t anticipate any early effects of the drought conditions in the US on food costs. However, that should start to become more evident from around the turn of the year. The renewed upward pressure on both energy and food prices is likely to ensure that headline CPI inflation does not dip below the Bank of England’s 2% target for at least the next two years.

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 for the week of September 10-14, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Historical: From 2010 to Present

Highest: 1.6747 USD on April 28, 2011.

Average: 1.5751 USD over this period

Lowest: 1.4229 USD on May 20, 2010. 

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Government Bond Auction

Date Time Country 

Sep 17 09:10 Slovakia

Sep 17 10:00 Norway 

Sep 18 08:30 Spain 

Sep 18 09:10 Greece 

Sep 18 09:30 Belgium 

Sep 19 09:10 Sweden 

Sep 19 09:30 Germany 

Sep 19 09:30 Portugal 

Sep 19 10:00 Norway 

Sep 20 08:30 Spain 

Sep 20 08:50 France 

Sep 20 09:30 UK 

Sep 20 09:50 France 

Sep 20 15:00 US 

Sep 20 17:00 US 

Sep 21 15:30 Italy