The GBPUSD is just shy of the 1.3600 handle, which is significant for technical reasons. But, whether or not it manages to push through will likely depend on fundamentals, and the major risk events coming up this week. The latest trends pushing the currency pair have been on the dollar side, but that’s likely to switch with the release of two key UK data points on Tuesday and Wednesday.
From the dollar side, the main even of the week will likely be the FOMC minutes, which will come out only after the UK data, meaning it’s the British side that’s likely to drive the GBPUSD over the next couple of days. And is likely to be the catalyst the pair moves through the crucial 1.3600 handle.
The Set Up for the Big Move
Already, the dollar has largely weakened, which has set up a situation where stronger than anticipated UK data could push the pair through the barrier. But, weaker data could leave the pound retreating once more and returning towards August lows, particularly if it implies the BOE will keep rates on hold for longer.
After the last Bank of England meeting, which was deemed hawkish given 3 dissenters voting for a rate hike, markets have priced in around a 30% chance of tightening at the next meeting. This is slightly less than the outlook for the Fed. On a longer scale, however, markets anticipate both central banks to tighten, leaving the rate gap unchanged.
Upcoming Data About When, Not If
What could matter for the currency pair is the timing, however. If the odds rise for the BOE to hike before the Fed, then the pound could get stronger. But, soft data could leave the market pricing out a rate hike this year, which could leave the currency pair weaker.
For now, after the beat in UK GDP and softer US CPI, markets are betting that pound will outperform. This puts the risk of a surprise to the downside, since a beat in the upcomign data would largely align with the market’s bullish sentiment for the pair. Mixed data so close to a strong technical level could also mean there is limited upside, but more room for the pair to decline if traders focus more on the negative data.
What the Market Is Looking For
First up, on Teusday is the release of the UK June unemployment rate, which is expected to remain unchanged at 4.9%. June payrolls change is projected to reverse to +5.0K from -4.0K, but has been fluctuating in single digits, which has left the impression that the labour market is in a low hiring, low firing phase. This slack in the job market is likely to keep concerns around wage-based inflation contained. But, that could change if there is a notable decline in the unemployment rate.
Next up is Wednesday’s CPI data, with the headline July inflation rate projected to accelerate to 3.0% from 2.6% a month earlier. The gain is likely attributable to an adjustment to energy prices by Ofgem, meaning markets will focus more on the core rate, which is more closely followed by the BOE. Excluding energy and food, UK July inflation is projected to ease to 2.5% from 2.6% prior. Still above target and putting pressure on the BOE to hike at least once. A surprise here could substantially change the odds of BOE action and the GBPUSD.
