Fundamentals for trading GBP
2/12/2017
There are many economic releases that influence the pound the most and help us to form a comprehensive view of its further direction.
CPI report
The latest CPI figures beat the market expectations having risen by 1.2% from November’s update. It was the highest inflation rate since July of 2014 boosted by risings costs of transport, housing and utilities amid a weakening pound. The Bank of England expects a rather moderate acceleration of the inflation rate through this year and 2.8% uptick in 2018. In addition, the Monetary Policy Committee expressed its readiness to tolerate such pace of price rates allowing the country’s economic growth to gather momentum.
Bank Rate, BOE Inflation Report
These reports have a great impact on the pound’s value. The rate decisions are delivered by the Monetary Policy Committee (MPC) on the monthly basis. Sometimes they are accompanied by elaborated statement which sparks traders’ interest and give them clues about the future central bank’s undertakings.
The recent BoE’s report and rate statement sent the pound below 1.2510 from 1.2705. The bank officials voted unanimously to hold the bank rate at a record low of 0.25%. The greatest effect produced an accompanying statement in which policymakers said that they are ready to respond in either direction (to cut or raise interest rate) for the better economic outlook. There was no hint of worries about the heightened inflation rates; the economic growth of the UK took the center stage in the BoE’s monetary policy report.
Gfk Consumer Confidence, Nationwide Consumer Confidence
These surveys gauge the consumers’ readiness to spend/buy in the nearest future, trace whether the country’s citizens are optimistic about the economic or grossly pessimistic. In simple terms, they get inside into consumers’ expectations for the next half of the year. Gfk is designed to reflect the respondent's feelings towards events that happened in the previous 12 months, and their expectations for the next 12 months.
Manufacturing PMI, Services PMI, Retail Sales, GDP
All these reports are the gauges of the country’s economic growth. The primary measure of economic activity in the UK is the gross domestic product (GDP). There are three different GDP reports traders should be aware of – Preliminary GDP, Revised GDP and Final GDP. The Preliminary GDP estimate is the earliest gauges of the country’s economic health. Therefore, it tends to have the biggest impact on the currency, but at the same time this release is the least accurate; later, it becomes a subject for revision (Revised GDP and Final GDP reports offer a more comprehensive outlook of the UK economy, but they may not expect fireworks from them).
Trade Balance, Current Account
The gauges represent an accounting record of country’s interaction with the rest of the world. The BoP is made up of three accounts, but generally, only the current account is of interest to forex traders. The current account shows the amount of imported and exported products and services, traces the flow of income payments and transfer payments. A current account surplus is positive for the currency and a deficit is negative
Brexit factor
Another fundamental factor that poses significant pressure on the British pound is the Brexit process. After June 23 vote to exit the EU, GBP fell to its historically low levels against the greenback. The renewed weakness followed after Mrs. May set the Brexit deadline (March 31). Once Article 50 is triggered the United Kingdom will start its formal negotiation with the EU on the future relationships. The official exit from the EU should bring lots of new challenges for the British economy. It will have to go through a thorny path of adjustment to the new economic and political environment. Now, we may only guess whether the UK made a right choice exiting the European Union or not. What we can say for sure is that the “Brexit” will be a buzz word for a very long time.
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