GBP/USD Daily Fundamental Forecast – January 19, 2017

We had mentioned in our forecasts yesterday that the pound is unlikely to sustain the gains that it made following the speech from the UK PM May, where she laid down guidelines for the Brexit process and made it transparent that the process is likely to be a hard one. We had mentioned that it was only a matter of time before the dollar strength returned and if and when it does, the GBPUSD pair is likely to go down. This is exactly what we saw yesterday as the pair was unable to sustain its gains above 1.2400 and made its way below 1.2300 where it sits as of this writing.

Yesterday, we saw the trend of good economic data from the UK continue as the claimant count change and the average earnings came in better than expected but these were not so important data and the market chose to ignore it in general. But it is to be noted that the UK continues to throw up great economic data week after week despite the confusion and the risks surrounding the Brexit process. The market instead chose to focus on the US data which was on expected lines but by then the weakness in the GBPUSD pair had set in. The trigger for the downmove came late in the evening after the speech from Yellen where she made it clear that if the data continues to be good, then a rate hike can be expected in the coming months. This was the push that the dollar needed and it made full use of that and it helped to push the pair below 1.2300.

We continue to feel that the pair is likely to continue to trade in a weak manner in the short and medium term and with the dollar gaining in strength, this is the pair that is most likely to be affected. Looking ahead to today, we do not have any major economic news from the UK and so we expected the trend of dollar strength to continue and keep the pair under pressure.