GBP/USD Weekly Fundamental Analysis, August 3 – August 7, 2015 Forecast

Weekly Analysis and Recommendations: 

The GBP/USD finished higher last week, driven by better-than-expected U.K. Preliminary GDP data. This report showed the economy growing during the second quarter at a pace of 0.7%. This was considerably higher than first quarter growth of 0.4%, but as expected. The market was underpinned by the news because it came on the heels of the previous week’s hawkish Bank of England minutes which showed that a few Monetary Policy Committee members were talking about a rate hike by the end of the year.

The Bank of England’s interest rate decision on August 6 could influence the market the rest of the month. This same day, the government will release its latest quarterly inflation report.

Recent comments from BoE Governor Mark Carney have him preparing U.K. households and businesses for higher borrowing costs. Signs of a greater dissent within the Monetary Policy Committee (MPC) are also strong indications that rates are set to move higher before the end of the year.

The Fed statement last week was hawkish, but it also contained language suggesting the central bank was in no hurry to raise interest rates. Therefore, we have a race developing between the BoE and the Fed as to who is going to raise rates first. There is growing speculation that MPC members Martin Weale and Ian McCafferty will push for a rate hike sooner-rather-than-later. This will certainly provide support for the British Pound. However, another unanimous vote to keep rates at historical lows could trigger a resumption of the downtrend.

Adding fuel to the fire this week will be Friday’s U.S. Non-Farm Payrolls report. Traders are currently pricing in a 224K increase. A number well above this figure will be bullish for the U.S. Dollar because it will likely mean the Fed will hike rates in September. A number well below the estimate will likely mean a rate hike will be taken off the table until December.

Look for a sideways trade until Thursday and Friday when volatility is likely to hit the market.

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.

Important Reports to Watch This Week:

         Date                     Time               Curr                               Event                                                             Forecast  Previous