GBP/USD Daily Fundamental Forecast – December 07, 2016

GBPUSD, like most of the dollar related pairs yesterday, spent most of the day in a ranging and consolidation mode only on either side of 1.27, something which we had said in our forecast yesterday. There was no major news from the UK to push the pair on either side and so like the rest of the dollar related pairs, it spent the day quietly as well. We expect the volatility to pick up as we approach the Fed meeting that is scheduled for the middle of the month and in that meeting, we expect the Fed to announce the first rate hike. This rate hike is already priced into the markets and so the investors and traders would be looking more at the guidance for further rate hikes in 2017 rather than the actual rate hike that will be announced. This guidance will be key to determine the short term direction of the dollar. The market expects the Fed to follow up with further rate hikes quickly and unless the guidance points to the same, we could be in for some dollar weakness.

Looking at the UK itself, we still have the Brexit process going on which is expected to drag on for a couple of years and this will involve some tough negotiations with the Euro leaders who would want to give as less as possible to the UK and make life as difficult for them as possible to send out a message to other countries in the Eurozone of the possible consequences, if they choose to seek the path that the UK has chosen.

Looking ahead to today, we have the Manufacturing Production data from the Uk during the London session and the traders would hope that it continues the trend of good data from the UK. If it does come out strong, we can expect a serious challenge on 1.28 else we will continue to consolidate on either side of 1.27.