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GBP bulls could be stifled as the UK kicks off a week of decisive data

Tuesday’s UK jobs report provides the first of a raft of key economic data points which will provide a key basis for GBP sentiment as we move forward.

Pound Source: Bloomberg

UK data set to bring focus back onto the economic recovery

The UK looks to be back in focus this week, with a raft of notable economic data points released over the course of the week. Tuesday brings the first of those releases, with the employment picture coming into sharp focus thanks to wage, unemployment and claimant count figures.

It is worthwhile noting that the claimant count figure is the leading release, covering July. Meanwhile unemployment and average earnings reflect June, prior to 19 July removal of restrictions. With that in mind, keep a close eye out for the claimant count reading. Last month saw a record 114,800 decline in claimants, yet forecasts point towards a dramatic improvement on last month’s figure to provide a fresh record low of -180,000.

With Tuesday expected to hammer home to improvements seen in the jobs market, Wednesday will be followed closely for its focus on the inflation picture. Elevated inflation has brought about a more hawkish tone from some Monetary Policy Committee (MPC) members, yet this week could bring signs that consumer price index (CPI) has topped out. Headline inflation expected to decline from 2.5% to 2.4%, while core CPI is forecast to decline from 2.3% to 2.1%.

This would mark the first signs of a reversal after a period of dramatic upside that took inflation from 0.7% to 2.5% in the space of three months.

Inflation chart Source: Tradingeconomics
Inflation chart Source: Tradingeconomics

Finally, keep an eye out for the retail sales figure on Friday, with the month-on-month figure expected to improve from 0.5% to 0.8%.

The year-on-year (YoY) figure is expected to decline, but that looks to be more of a reflection of the dramatic jump in retail sales seen this time last year.

GBP in focus as UK expected to see BoE pressure ease

Should we see an improved economic outlook and easing inflation fears come to pass, it would provide less of a reason to be long the pound.

The gains seen over the course of the past year have taken us back into a crucial area of resistance, with lows throughout the past 29-years bringing plenty of examples where the price reverses around this zone.

With that in mind, there is the basis for a potential decline over the near term.

GBP/USD monthly chart Source: ProRealTime
GBP/USD monthly chart Source: ProRealTime

The daily chart highlights how the price has been struggle of late, with the trendline break seen back in June bringing a decline through $1.367. That does raise the likeliness of a bearish phase coming into play before long.

Much of that sentiment looks set to be established in the week ahead, with the Bank of England (BoE) provided with a wealth of data that should inform monetary policy thinking as we go forward.

GBP/USD daily chart Source: ProRealTime
GBP/USD daily chart Source: ProRealTime

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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