GBP/USD Weekly Fundamental Analysis, July 27 – July 31, 2015 Forecast

Weekly Analysis and Recommendations: 

The GBP/USD finished lower for the week. Since reaching a top at 1.5929 the week-ended June 19, the Forex pair has declined four out of five weeks. The charts came into play also with the recent rally ending slightly above a major 50% retracement level at 1.5878.

Talk of higher interest rates has dominated the conversation lately. Two weeks ago, it was a few Bank of England Monetary Policy Committee members talking about the need to raise interest rates. Last week, the minutes from the last BoE meeting suggested that more members may be leaning towards raising interest rates before the end of the year. Some traders even talked about the possibility of a BoE rate hike before the Fed.

The British Pound seemed poised for a strong finish last week until the release of a weaker-than-expected U.K. Retail Sales report on July 23. This report showed that retail sales fell unexpectedly by 0.2%. Traders were looking for a reading of 0.4%. This report is more likely a bump in the road rather than a deal breaker since the main factors the central bank is looking at are consumer inflation and the labor market. The recent steep drop in oil prices could mean another dip in the CPI and this would be a key development to keep an eye on because low inflation would likely mean the BoE will delay its decision on the rate hike.

Keep an eye on the housing market also because if rates are raised, mortgages are going to move higher too. Those low-income holders of adjustable mortgages would have to come up with higher monthly payments. The U.K. could have another housing crisis on its hands in 2016 if rates move higher too fast.

This week, the Fed meets on Wednesday, July 29 to discuss monetary policy. No major decisions are expected to be announced. The central bank is expected to reiterate its previous assessment of the economy and say that it is on track to raise interest rates by the end of the year.

Also on tap this week is the U.K. Preliminary GDP report on Tuesday, July 28. It is expected to show an increase of 0.7%. The U.S. reports Advance GDP on Thursday, July 30. Look for a reading of 1.5%.

The economic reports could be market drivers this week, but the main focus for traders over the next few months will be the timing of the Fed and BoE rate hikes. Whoever raises first will have the advantage and buyers will flock into that currency. Because of the uncertainty in the U.K. economy, gains are likely to continue to be capped, but the downside will also be limited. Traders should look for a sideways-to-lower trade over the near-term.

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