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Despite a bad month GBP still has the potential to

GBP has suffered quite a set-back during July with the market rowing back on UK interest rate hike expectations, however it may still make a comeback – after all there are a number of bullish factors supporting the currency.

The UK is still the most likely of the large economies to increase interest rates first reflecting a robust recovery. However, confusing noises out of the Bank of England over monetary policy has wrong footed traders.

Also, US data has been improving with the US Federal Reserve continuing to scale back its quantitative easing programme making USD more attractive.

By Justin Pugsley, Markets Analyst MahiFX. Follow  @MahiFX  on twitter

Certainly the data coming out of both countries will continue to be a factor for GBP/USD exchange rates. Both countries are likely to see bouts of weak and strong data on the economy, inflation and real estate prices.

GBPUSD rally — unlikely to be over just yet

GBPUSD July down but not out technical forex chart for currency trading pound dollar

Sterling prospects from Q4 onwards

Every month poses a new opportunity for surprises on the data front or from the heads of central banks, which can change forex trends. But there are a number of other factors, which should support GBP as the year progresses. For example, going into Q4 the UK real estate market is likely to pick-up again, which will reignite speculation over raising interest rates.

Another important factor is that the UK faces a general election in May next year. Admittedly this could be a double edge sword for forex markets. The government will want the economy performing at its best (and won’t want to disturb the residential real estate market either) to create a feel good factor. That’s bullish for GBP/USD.

When the Bank of England does finally raise interest rates it will be for the first time since 2007 making it a highly symbolic moment. The Bank will be keen to make sure it doesn’t appear to be influencing the outcome of the election. That could be bearish for GBP/USD.

Raising interest rates too close to the election i.e. going into 2015 may well be avoided. However, it could still move late this year or very early next year. If the economy is indeed normalising quickly a small pre-emptive move on interest rates may save having to raise them more aggressively later if nothing is done.   So far the bank is only talking about gradual increases once they start.

And there’s yet another factor – seasonally Nov / Dec can be quite favourable for GBP/USD.   Therefore there could still be some life in the GBP/USD rally.

More: GBPUSD forecast.

Justin Pugsley

Justin Pugsley

MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australia’s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets Analyst MahiFX  Follow MahiFX on twitter and on facebook  Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFX’s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice