GBP/USD Fundamental Analysis – week of August 7, 2017

It was a busy week for the pound as there was a whole host of news that dominated the headlines last week. The early half of the week saw the pound basically continuing from where it left off in the week before that as it pushed higher towards the strong resistance at the 1.3250 region and though it threatened to break through this region, it could not manage to do that as it was met with a lot of selling.

GBPUSD Likely to See Choppy Action

We had mentioned in our forecast during the week that this region would be a tough nut to crack and with the BOE rate announcement and statement approaching, it would not be worth the risk to hold on at this price region. The BOE announcement did come through and it turned out to be a disappointment for a small section of the market that was expecting a hike. The BOE had been hawkish over the last month or so and this part of the market expected the hawkishness to continue in the form of a rate hike. But with the confusion and uncertainty over the Brexit process continuing to hit the UK hard, it was wise on the part of the BOE to not muddle the waters at this point.

The pound was hit hard by this decision and also due to the bearish outlook on inflation and growth and the GBPUSD pair dropped by over 100 pips on that day as it awaited the NFP later in the week. The NFP also came in stronger which dropped the pound through 1.3100 but the region around 1.3030 should provide good support.

Looking ahead to the next week, we have the manufacturing production data from the UK and the CPI data from the US and these will be watched closely for any signs of weakness. We expect the GBPUSD pair to consolidate in the coming week as it digests the news over the past week and traders come to terms with it. This is likely to lead to some choppy action in the markets in the coming week.