GBP/USD: outlook for August 15-21
GBP/USD continued slowly moving down. The pound made one attempt to recover, but it wasn’t very convincing.
It was the first week of the Bank of England’s extended bond buying program. The start wasn’t very good: British central bank failed to attract enough bond sellers to reach its purchase target. Investors agreed to sell only 1.1 billion pounds of bonds to the regulator versus the planned amount of 1.17 billion pounds despite the fact that the BOE was buying at higher price than the market. The problem is that longer-term government bonds offer higher yield and are held by British pension funds that need these securities to match their liabilities. On Tuesday, August 16, the Bank of England will have another go at meeting its QE target, and it may once again create some volatility at the market.
Next week Britain will release a block of inflation data for July on Tuesday and labor market data on Wednesday. Inflation figures will be the first major data piece after the Brexit vote. In addition, there will be a release of retail sales on Thursday and public sector net borrowing on Friday.
Technically, the pound is oversold, corrections up are likely, but only increase above 1.3150 will improve the medium-term picture. In this case further resistance will be at 1.3300. If GBP/USD slides below the recent lows, the downtrend may extend to 1.2840/00.