GBP/USD Monthly Fundamental Forecast August 2015

Outlook and Recommendation

The GBP/USD added 26 points to trade at 1.5628 against a stronger greenback as traders look forward to the BoE meeting this month as there are indications that they might start to increase rates.  GBP outperformed all of the major currencies in July with a modest decline vs. the USD. The BoE’s narrow policy gap to the Fed provides insulation from some of the broader USD risk; however, we note that divergence in the scale of anticipated tightening is likely to weigh on GBP over the medium term. GBP sentiment remains bearish.

After a brief blimp around the turn of the year, UK economic momentum has reaccelerated to a slightly above trend pace that looks set to be sustained through to the end of 2015. The main engine of growth continues to be the consumer supported by faster wage gains, solid employment, and low inflation. However, these tailwinds are likely to fade in 2016, with the rebound in inflation likely to modestly erode real incomes, with an added drag from the first interest rate hike by the Bank of England (BoE). Growth prospects for UK exports should also improve as the euro zone recovery persists. That said, ongoing appreciation in the GBP exchange rate is likely to hold back the upside. Overall, we expect UK real GDP growth to advance just above 2½% this year before slowing towards a still robust 2% through to 2017. The recent fall in the price of oil, coupled with continued appreciation of the GBP has dampened the outlook for UK inflation.

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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events In August That You Should Be Monitoring: