Lighter Data Week Could Mean Some Respite

British Pound Outlook – Neutral

• The Pound has slid consistently as US/UK interest rate views have shifted
• The Dollar has gained broadly as it seems less likely that the Fed will move before the year’s second half
• The coming week may not do much to change this view

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The British Pound has been falling against the United States Dollar for some six weeks now, with the markets’ ever-moving take on monetary policy differentials between the Bank of England and the Federal Reserve very much in charge. The week ahead offers little chance of fundamental change here, with a modest sheet of likely scheduled trading cues. But a lull in action might just favor the battered Pound which could at least pause on the way down.

Essentially expectations of when UK interest rates could fall have been brought forward even as those around when the Fed might act have been pushed further and further back.

The UK spent much of last year as an inflation outlier, with price rises remaining stubbornly strong even as they weakened across peer economies. Now things are a little different, with UK consumer price inflation coming to heel at last. The most recent print showed an annualized gain of 3.2%. That was a tick above market expectations but still its lowest level for more than two years.

Some weaker employment data also took a toll on the pound last week, with a higher-than-expected jobless rate seen as bolstering the BoE’s leeway to take action.

Still, there’s only a single quarter-point rate cut priced into sterling markets this year, which is a broadly similar prognosis to the Dollar’s. The inflation picture is similar too, with prices decelerating but still rising more strongly than either central bank’s target rate.

The coming week will bring a few heavyweight news releases, but they’re all from the US. Durable goods orders for March will kick things off on Wednesday, with official Gross Domestic Product numbers coming up a day later. However, the main event is likely to be price index data from the Personal Consumption and Expenditure series, known to be a release the Fed closely tracks.

Expect at least short-term Dollar gains if this comes in strongly, with corresponding weakness should it underwhelm. The last release showed core inflation at 2.8%, with the headline reading at 2.5%.

GBP/USD Technical Analysis

GBP/USD Daily Chart Compiled Using TradingView

The Pound is holding above 1.2400 but is under clear pressure and the bulls will fight with their hands to keep it above that psychologically important level this week.

GBP/USD’s heavy falls on the 10th and 12th of April have seen it slide at last below the very broad trading band which had previously contained trade since late November last year. That band was abandoned with April 12’s slide below retracement support at 1.24971.

Focus will now be on support at November 17’s low of 1.23724, should the 1.2400 handle give way.

The broad downtrend channel from March 8 remains dominant and quite well respected, having survived yet another test on Tuesday when the intraday low was smack on the lower boundary line. With that in mind, any break below it could well trigger deeper near-term falls.

Having hovered close to the 200-day moving average since the middle of March, the pair has fallen quite emphatically below it in the last week or so.

IG’s own sentiment data finds traders quite bullish on Sterling at current levels, but, with short positions creeping up, that’s hardly an emphatic sign of support.

–By David Cottle for DailyFX