GBP/USD Weekly Fundamental Analysis, November 9 – November 13, 2015 Forecast

Weekly Analysis and Recommendations: 

The GBP/USD finished lower last week, finishing at 1.5046, down 0.0380, or 2.46%. The selling started on November 5 after the Bank of England dampened expectations of an interest rate hike in February or March of 2016. The central bank left its benchmark interest rate at 0.50% while issuing a dovish statement that suggested interest rates weren’t likely to move higher until late 2016.

The BoE also predicted near-zero inflation would pick up only slowly even if borrowing costs stay on hold throughout 2016. The central bank’s minutes showed only one Monetary Policy Committee member, Ian McCafferty, voted to raise rates this month, while the other eight members voted to continue to leave interest rates at a historical low.

The dovish comments from the BoE coupled with the stronger-than-expected U.S. Non-Farm Payrolls report on November 6, triggered an even steeper break. The U.S. Non-Farm Payrolls report for October showed the addition of 271,000 jobs, soundly beating estimates of about 179,000. The unemployment rate ticked lower to 5 percent, marking full-employment. Average hourly earnings increased 9 cents or 0.4%, for an annualized increase of 2.5 percent. This put it slightly above the Fed’s mandated inflation target of 2.0 percent.

The jobs data builds a strong case for a December interest rate hike and coupled with the BoE’s dovish talk, should continue to pressure the GBP/USD over the near-term. There will be short-covering rallies due to position-squaring and reaction to oversold technical conditions, but for the most part, sellers are likely to be in control.

With the jobs report out of the way, the focus will shift towards the consumer. Friday’s retail sales report will be most important. Core retail sales are expected to recover from the previous reports -0.3%. Traders expect it to rise 0.4%. Retail Sales are estimated to show a 0.3% gain versus the previously reported 0.1%. 

Softer-than-expected retail sales figures will not necessarily take a December rate cut off the board, but it could give short-sellers a chance to lighten up positions, triggering a modest short-covering rally by the Sterling. 

Other important U.S. reports this week include JOLTS Job Openings on Thursday and Consumer Sentiment of Friday. 

Several Fed members are scheduled to speak next week, including William Dudley, James Bullard and Jeffrey Lacker, but the primary emphasis will be on Fed Chair Janet Yellen who is scheduled to give welcoming remarks at a Fed conference on Thursday.

The U.K. releases its labor report on November 11. The Average Earnings Index is expected to show a gain of 3.2% versus 3.0%. The claimant Count Change is expected to show a 1.6K increase. The unemployment rate is expected to remain at 5.4%. 

Forecast 

Aside from periodic short-covering rallies due to oversold conditions, selling pressure is expected to dominate the trade over the near-term. The divergence between the monetary policies of the Fed and the Bank of England should continue to weigh on prices. The Fed is just waiting for U.S. economic data to confirm what 70% of the traders anticipate, a rate hike in December. The 8-1 vote by the BoE to refrain from hiking rates indicates that the monetary policy members are in no hurry to raise rates. This week’s jobs data is expected to show that a slower recovery should be anticipated. Additionally, comments from Governor Mark Carney suggest that the central bank is still worried about external risks from weakness in the Euro Zone and China. The advantage goes to the U.S. Dollar.

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