GBP/USD Weekly Fundamental Analysis – April 4- 8, 2016 -Forecast

The GBP/USD gained just 0.57% last week to trade at 1.4224 seeing an annual fall of 3.49% as Brexit continues to weigh on the currency. Although GDP beat forecasts recently manufacturing data was a bit weaker.  The UK outlook is being dominated by the build up to the June 23rd referendum on whether the UK should leave the EU or Brexit for short. The more reliable phone-based opinion polls are showing a lead of close to 10% for the “stay” camp.However, that is down from over 20% at the end of 2015.

Ultimately, we expect the vote to result in the UK staying in the EU, but there is likely to be a lot of uncertainty in the next 2-3 months ahead of the vote. Indeed, the GBP exchange rate has weakened sharply since late-2015 as Brexit uncertainty has built. In isolation, this should be positive for both growth and inflation, although a boost is not guaranteed. The weaker exchange rate makes the UK more competitive in international markets. The Brexit uncertainty is likely to be a dampener on hiring and investment decisions. Furthermore, while the weaker GBP should help to push inflation higher due to a rise in imported goods prices, the pass-through from the exchange rate to core goods prices probably means that the boost to inflation is unlikely much before end-2016/early-2017. Against that backdrop, analysts expect UK real GDP growth to remain steady at around 0.5% q/q through 2016. Inflation should move sideways at just above zero for the next 6 months, before accelerating towards 1% later in the year on the back of base effects and as GBP weakness begins to take effect. The first BoE rate hike is likely to wait until mid-2017. gbpusd Major Economic Events for the week:

Cur. Event Actual Forecast Previous
Monday, April 4, 2016
China – Tomb Sweeping Day
  AUD Retail Sales (MoM) (Feb) 0.4% 0.3%
  GBP Construction PMI (Mar) 54.0 54.2
Tuesday, April 5, 2016
  AUD Interest Rate Decision (Apr) 2.00% 2.00%
  GBP Construction PMI (Mar) 54.2
  GBP Services PMI (Mar) 54.0 52.7
  USD ISM Non-Manufacturing PMI (Mar) 54.0 53.4
Wednesday, April 6, 2016
  GBP Services PMI (Mar) 52.7
  CAD Ivey PMI (Mar) 55.0 53.4
  USD Crude Oil Inventories 2.299M
Friday, April 8, 2016
  GBP Manufacturing Production (MoM) (Feb) -0.2% 0.7%
  CAD Employment Change (Mar) 15.0K -2.3K

Source: Fxempire

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