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GBP/USD awaits the Inflation Report

   Kira Iukhtenko

Cable pushed from the $1.5000 support on the past week, but failed to leave the long-term bearish channel. The bullish impulse was capped at $1.5350 on Friday. The market was first disappointed by a larger-than-expected UK trade deficit, while later in the day strong US labor data increased pressure on the pair.

We have to note that the overall upbeat tone in the UK economy persists. January PMI indices confirmed the ongoing recovery. However, terms of the BOE rate hike still remain very unclear.

We could get more information on that issue on the new week: Bank of England is scheduled to release Quarterly Inflation Report on Thursday. Economic and inflation forecasts could be revised to the downside. The BOE Governor Carney has recently admitted that the UK economy could enter a short-term period of deflation in the year 2015. CPI fell to a record low of 0.5% in December.

Inflation report and Carney’s press-conference that follows create bearish risks for the GBP/USD currency pair. We expect the cable to retest $1.5000 in the nearest future. Next support to watch lies at $1.4815 (2013 low). At the same time we expect the sterling to strengthen against the euro – monetary policy divergence remains a clear bearish factor for EUR/GBP. We project the pair to decline to 0.7200 in the coming weeks. 

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