GBP/USD Fundamental Analysis, May 12, 2015 – Forecast

Analysis and Recommendations:

The GBP/USD declined 58 points to trade at 1.5398 as traders booked profits and corrected from the overreaction after the election.  Interest rates remained on hold at 0.5% today as the Bank of England announces its first post-election policy decision. Rates have been at the historic low for six years and the slide in inflation to zero has pushed back expectations for the timing of a hike into 2016.

Meanwhile minutes of the April meeting of the Monetary Policy Committee (MPC) suggested a “hawkish” turn as it pointed to the possibility that inflation might recover more quickly than previously expected. Consumer Price Index (CPI) inflation was at zero in February and March – rather than turning negative as some expected – meaning it might now have avoided this risk.

The Bank has said it expects CPI, which has been under pressure amid the sliding cost of oil and the supermarket price war, to turn negative “at some point the coming months”.

However the latest meeting also said another cause of low inflation – the strength of the pound making imports cheaper – may have been feeding through to CPI more quickly than expected – meaning that a bounce-back could also come sooner.

On Friday, the GBP rose 0.49% against the USD and closed at 1.5449, after UK Prime Minister, David Cameron regained power as Conservative party registered victory in Britain’s general elections.

In economic news, the UK trade deficit narrowed to £2.8 billion in March from £3.3 billion in February. Meanwhile, the Halifax house price index rose 1.60% MoM in April, compared to a revised rise of 0.60% in the prior month. Markets were anticipating the index to climb 0.30%.

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 up to the data analysis and information in our weekly reports.

Today’s economic releases actual vs. forecast:

 

Upcoming Economic Events that you should be monitoring:

Tuesday, May 12, 2015

Government Bond Auctions

Date Time Country

May 12 09:15 Norway Holds bond auction

May 13 09:10 Italy Auctions BTPs/CCTeus

May 13 09:30 Germany Eur 3bn Feb 2025 Bund

May 13 14:30 Sweden Details bond auction on 20 May

May 14 09:30 UK Auctions 2% 2020 Conventional Gilt