Think the Bank of England is bound to cut interest rates in August? These upcoming data releases from the U.K. could paint a clearer picture for your monetary policy expectations. And if you’re a news trader looking to grab quick pips off these events, it would also help to take note of what’s expected and how pound pairs reacted to previous releases. Here’s what’s in store for the U.K. this week:
1. U.K. CPI (July 19, 8:30 am GMT)
For the month of June, headline CPI is expected to indicate a 0.4% year-over-year increase in price levels while core CPI could show a 1.3% gain. This would represent upticks over the previous month’s 0.3% headline CPI and 1.2% core CPI. Keep in mind, however, that three out of the last five inflation releases have churned out weaker than expected results.
In the previous release, Cable was already on a steady downtrend as traders likely priced in their expectations earlier in the day, only to trigger a quick bounce on profit-taking when the actual figures were printed. Still, the pair was able to resume its slide a few hours into the U.S. session as EU referendum jitters were also in play then.
2. Employment figures (July 20, 8:30 am GMT)
The June claimant count change is expected to indicate a 4.1K increase in joblessness, erasing the 0.4K rise in hiring seen during the previous month. Three out of the last five claimant count change readings have printed upside surprises, though, and indicated employment gains.
GBP/USD rallied upon seeing mostly stronger than expected figures for hiring and wage growth, but these gains quickly fizzled out as price hit strong resistance at the 1.4200 major psychological level. Even so, the pair managed to keep its head above the 1.4150 mark for the rest of the day.
3. U.K. retail sales (July 21, 8:30 am GMT)
Lastly, the June retail sales report is expected to show a 0.4% decrease in consumer spending. This would be weaker compared to the earlier 0.9% increase in May retail sales, which was accompanied by an upgrade in April data.
Cable was barely able to hold on to its gains after the stronger than expected May retail sales reading was released, as this was overshadowed by the June BOE interest rate decision and the release of the MPC meeting minutes. After all, this event emphasized that the British pound could be in for sharp declines if the U.K. decides to exit the EU and that a Brexit would result to worsening terms of trade and lower productivity.
If you’re wondering what that sudden turn close to the 1.4000 major psychological level was all about, the reversal occurred when news of MP member Jo Cox’s assassination broke out and revived hopes for the “Remain” camp.
Tips and Tricks
While it’s difficult to spot patterns from the previous releases due to the looming Brexit vote back then, it’s still worth taking note of these factors for your GBP trades:
- The initial price reaction could be limited to nearby major psychological levels, especially if expectations priced in earlier in the day turn out accurate.
- Longer-term market themes (Brexit issue back then, August BOE easing expectations this time) could have a stronger say even in intraday price action.
- Reversals tend to gain more traction towards the middle of the U.S. trading session.
To put these reports into perspective, I also suggest you review my latest Forex Snapshot on the United Kingdom.
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