Will Pound Show Strength Next Week?

The Great Britain pound was falling at the start of this month, but paused the decline this week and was performing not that bad. It still fell against the US dollar, but reduced losses versus the yen, ending the week almost flat, and jumped versus the euro. Does this mean that the currency is ready for a rally to new highs or is it too early to rush buying the sterling? Let us look at different arguments about this matter.

Many experts have a very positive outlook for Britain’s currency. The major reason for this is the prediction of positive employment data. The December’s report was favorable as claims for unemployment benefits dropped 36,700, exceeding forecasts, and the unemployment rate unexpectedly slid from 7.6 percent to 7.4 percent. The January release is expected to show further drop of jobless claims by 32,300 and a decline of unemployment to 7.3 percent.

The Bank of England will conduct its monetary policy meeting on January 22. No changes to policy are expected, but several policy makers will speak the next day after the gathering and if their speeches retain optimistic tone than the pound will likely rally. All these considerations made DailyFX issue a bullish outlook for the UK currency and it is going to stay bullish at least until GBP/USD falls below 1.6300.

Forex Crunch is more cautious on the currency pair. The BoE, while being generally optimistic, signaled that it is not going to raise interest rates in the near future, reducing potential positive impact from supportive fundamentals. And fundamentals itself were often disappointing, which resulted in the recent slide of the sterling. But the most important reason for caution is the strength of the dollar, which is boosted by talks about additional stimulus tapering by the Federal Reserve. There will not be many economic reports from the United States next week, but jobless claims and employment data may affect the greenback and, as a result, other currencies, including the pound.

All in all, it looks like the UK currency has upward bias, but has not established a definite trend yet. The currency will likely demonstrate clearer behavior after Wednesday’s data from Britain and Thursday’s reports from the USA.

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