On 18th June, sterling was underpressure from mixed datas about U.S. economy, which caused it to drop 0.2% in U.S. session but could not pare gains earlier. Yesterday GBP/USD increased 0.2%, closed at $1.58276.
U.K. retail sales rose 0.2% in May, more than expectation of 0.1%. Near zero inflation and positive improvements on labor market would encourage private consumption.
U.S. unemployment claims dropped by 12,000 to 267,000 last week, the lowest since 9th May, indicating growth engine of labor market improved. CPI rose by 0.4%, lower than May, which means it takes time to bring inflation back to target 2%. Core CPI reached 0.1%, after touched 0.4% in April.
Sterling has been the best performer among majors because of demand for safe heaven against Greek crisis. GBP/USD is currently at the highest of 7 months showing signs of “over-bought”.
GBP/USD may come down due to:
- The deadlock of Greece has pushed demand for pound as the safe heaven. The over value status may lead to market correction. Investors may choose high price to sell in the long term, especially, on anticipation of Fed’s rate hike in the later of the year. As soon as there is a hint from Fed’s move, dollar may, based on positive economic data to climb up.
- U.K. stock market is becoming gloomy due to expensive sterling, money from U.K. may flow into other market with lower cost and safe as well like Germany (cheap euro and stable German economy) and Japan (on-recovery economy and easing monetary policy).
- Brexit: President of European Parliament Martin Schulz saw little chance for David Cameron on dealing about a change in the Treaty and urged this country to commit with eurozone’s policies about immigrants and social welfares. The Chancellor Angela Merkel wants Cameron to have a fair hearing from 27 members of EU about key principles such as the freedom of movement and non-negotiable rules. Fifty MP of the Conservatives warned that they will promote people to vote for leaving in the referendum if the president fails to get UK a higher position in EU. The high risk of Brexit may drag GBP down in the short term.
GBP/USD may go up because:
- Greek negotiation failed again and again which cause investors worry and seek to secure their money by flying to UK. UK is less vulnerable than EU on growing concerns about Grexit. U.K. economy is on track of recovery, lower unemployment and positive wage growth. Sterling is attractive to currency investors.
- U.K.’s Public Sector Net Borrowing increased by 9.4B, a positive sign for fiscal balance, GBP may get support.
Forecast: the market correction for sterling will occur sooner or later, GBP/USD may down back to $1.58010, the highest of 14-15th May. However, if later, there’s still a chance for a break up to a new high at $1.59522.