The Pound Sterling to US Dollar (GBP/USD) exchange is forecast to have another mixed week as investors continue to look for signs that the UK and US economies are either experiencing a slowdown or just stabilising.
As last week ended, the US Dollar gave up ground against the Pound and other major peers as economists revised their estimates of US economic growth downward. The move came after the world’s largest economy posted a jump in its trade deficit to its widest level in more than two years.
The gap between imports and exports was $46.6 billion in December, up from $39.8 billion in November. A deteriorating trade picture subtracted 1% from the government’s first estimate of fourth-quarter growth. The new data means the subtraction is likely to be even bigger.
The UK also posted a wider than forecast trade deficit, adding to signs that the nation’s economy is softening.
Looking ahead to next week the main event for the Pound Sterling to US Dollar exchange rate will be the Bank of England’s inflation report and US retail sales data.
The BoE report will offer trader’s direction for the Pound as it will give the market a clearer view on the UK economy. If it suggests that inflation will fall even further over the coming months than expectations for a BoE interest rate rise occurring this year will be greatly reduced.
The U.K. central bank’s nine-member Monetary Policy Committee (MPC) left the bank’s main interest rate at a record low of 0.5% and the total size of its bond portfolio at £375 billion ($571 billion) after their February policy meeting.
Low inflation has already eased pressure on the BoE to hike rates and has caused other major central banks to either cut rates or loosen their monetary policies.
If US retail sales data comes in poorly than the US Dollar is likely to weaken against its major peers, as investors will become more cautious over the strength of the US economy.
Recent data releases have painted a mixed picture and suggest that the economy is slowing. The latest initial and continuing jobless claims data released on the same day will also be closely watched.
The Pound could also come under pressure from concerns over the UK general election. As voting day draws nearer and with no clear winner in sight, political uncertainty is set to soften Sterling.
The NIESR GDP estimate on Tuesday is expected to show that the UK economy expanded by 0.6%.
Main events for the GBP/USD Exchange Rate next Week
Tuesday February 10 – UK- Manufacturing and Industrial Production
UK- NIESR GDP Estimate
US – Wholesale Inventories
Wednesday February 11 – US Monthly Budget Statement
Thursday February 12 – UK – Bank of England Inflation Report
US – Jobless Claims
US – Retail Sales
