GBP/USD: a temporary improvement

Last week the pound’s decline has finally slowed down: British currency was helped by the support line connecting 2010 and 2013 lows which currently lies in the 1.5050 area. However, the bulls failed to create a big rebound.

Inflation in the UK was only 0.5% in Dec. – that’s only a half of what we saw in Nov. The Bank of England’s Governor Mark Carney has tried to persuade the market players that they shouldn’t fear deflation, but taking into account the falling oil prices such remarks don’t sound convincing. Note that the UK oil industry will be profitable will oil above $46 per barrel. Shell, BP and Chevron have already cut payrolls in Scotland.

Taking into account these developments, traders have pushed the expectations of the Bank of England’s rate hike further into future: now they think that it will happen only at the end of 2015 if not at the beginning of 2016.

Next week the UK labor market data on Wednesday will be a test for the pound. This release includes jobless claims, unemployment rate and average earnings. The Bank of England’s meeting minutes should clarify a bit the mood of the regulator. The picture will be completed by British retail sales on Friday.

Resistance for GBP/USD is at 1.55 (6-month downtrend line). A decline below 1.50 will open the way to 2013 low at 1.4813.

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