GBP/USD Forecast Dec. 19, 2011, Fundamental Analysis

On Monday, both economies lack economic fundamentals which propose that there would be calm trading on the pair which is predicted to follow the general trend in market as it will not able to get direction from data.

So far, the main focus is on the latest developments from the euro zone as many euro area economies prepare for bond selling this week.

Concerns dominated investor’s risk appetite behavior last week after the rise in Italian bond yields, downgrade by Fitch to large European lenders and weak growth outlook for the euro area gave bearishness to the pair as demand increased on the dollar as a refuge.

In addition, the downbeat data released last week from the U.K. increased speculations the BoE may add to the stimulus at the beginning of the year, especially after the slowdown in inflation to 4.8% in the year ended November, according to the consumer price index annual gauge, from 5.0% in October.

The releases showed that U.K. unemployment hovered around the highest level in 17 years in the three months to Oct. while retail sales with auto fuel dropped 0.4% in Nov.

Probably, the BoE will announce further stimuli after in February with the end of the 75 asset purchase program and with the release of the coming inflation report that will provide an update about the latest growth and inflation outlooks.

On the other hand, data from the United States gave some positivity to the sentiment last week with the improvement in continuing claims for the week ended December 03, empire manufacturing index and current account.

The Fed’s latest monetary decision signaled holding interest rate at its ultra-low level of 0.25% while policy makers referred that the world’s no.1 economy will continue its expansion. Hence, it seems that the Fed will not add to stimulus after the progress seen recently.

This week, the main focus will be on GDP final reading from both economies, BoE minutes from the U.K. and housing data from the U.S. in addition to other important news.