With close 5 weeks to go for the UK General Elections, the British Pound is likely to turn volatile but weaker in the run up. This week could be of special important as CPI and March job numbers are scheduled to be reported on 14th and 17th April respectively.
We got a glimpse of some action last week as weaker trade balance numbers saw a reason for heavy selling in the British Pound. For the most of last week, the Services PMI was the only indicator that managed to rise above estimates, which saw a modest rally in the GBPUSD. However, with the BoE standing pat on policy and the weaker trade balance as well as a slump in construction and industrial output, the Pound resumed its downtrend. Looking back, it seems that investors are merely waiting for a reason to sell the British Pound into the election season.
The week ahead will see two important economic indicators.
CPI data is expected to remain flat at 0% and 1.2% y/y on both headline and core reading, while on the monthly, inflation numbers are expected to slow down 0.2% on the headline, down from 0.3% previously.
Later in the week, the monthly jobs data is due to be released with expectations of a modest improvement in unemployment rate from 5.7% to 5.6% while the average earnings index is expected to remain stable at 1.8%.
Both the above indicators are closely watched by the Bank of England which would influence the BoE’s outlook on the economy. In the near term, a weaker than expected data on both fronts could see yet another reason to sell the British Pound while any upside surprise could turn out to be a sell into the rallies play.
Regardless of the outcome of the CPI or the labor market, the next BoE meeting will be muted without much of opinions being said about the economy as the BoE will meet on May 11th, just days after the general elections. It would entirely come down to the election outcome in order to expect any reaction from the BoE in terms of forward guidance at this point. Should the elections result in a clear majority (which is starting to look seemingly unlikely) the BoE could merely stay aside until the political dust settles.
However, in the rare case that the election verdict gives a clear majority mandate, the BoE could be likely to quickly react and comment on the economic developments and give hints in regards to its forward guidance.
For the moment, as uncertainty looms large, the British Pound is likely to stay subdued with investors looking to offload the British Pound against a stronger Greenback.
Here is a brief technical summary for the GBP cross currencies
GBPUSD: Looks poised to continue its downtrend, especially after breaking the previous short term support at 1.475. Downside targets include 1.45 followed by 1.44 and 1.43
GBPCAD: The British Pound has been ranging for the most part with the most recent break out reversing its gains to head back into the range of 1.859 and 1.767. Further consolidation is likely to take place in the GBPCAD in the near term.
GBPJPY: This pair has formed a large descending triangle pattern with the support at 176.8 being broken. A retest to this support could pave way for further declines in the near term with the outlook pointing to as low as 170 and 165 levels.
GBPAUD: The GBPAUD has been the stronger currency pair of the lot, but the charts show a possible weakness setting in. While price has managed to correct towards the previous support at 1.919, the current signs indicate of a possible breakdown in this currency pair. Support comes in at1.884, followed by the next major level at 1.864
EURGBP: EURGBP looks to be entering a consolidation zone as well with the highs and lows capped at 0.737 and 0.706. A break out in either direction is required to pave way for further clues to price action.
