GBP/USD Forecast March 22-26 – BoE stays dovish, CPI and retail sales ahead

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GBP/USD showed slight losses last week. The upcoming week has five releases, including inflation and retail sales reports. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

In the UK, the focus was on the Bank of England, which made no changes to interest rates or QE. In its Monetary Summary, members stated that inflation expectations were “well anchored”, but added that the bank stood ready to intervene if inflation faltered. As well, the bank stated that it would not tighten monetary policy “until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. Public Sector Net Borrowing jumped to GBP 18.4 billion, up from GBP 8.0 billion beforehand. The government was forced to spend more on Covid measures while tax revenue decreased due to the national lockdown, leading to a spike in government borrowing.

In the US, retail sales disappointed in February. The headline reading fell by 3.0% and the core reading came in at -2.7%, after both releases showed gains of over 5% a month earlier. The FOMC policy meeting was generally dovish, with policymakers reiterating that the Fed had no plans to raise interest rates before 2023. Still, the growth forecast was upbeat, as the US recovery shows signs of gathering steam. The Philly Fed Manufacturing Index soared from 23.1 to 51.8, and is now at its highest level in some 48 years.

GBP/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. Employment Report: Tuesday, 7:00. Wage growth has been steadily climbing and reached 4.7% in December. The upswing is expected to continue, with an estimate of 4.9%. Unemployment claims fell by 20 thousand in January, but are forecast to rise by 9 thousand in February. The unemployment rate has been moving higher and is expected to rise from 5.1% to 5.2%.
  2. CBI Industrial Order Expectations: Tuesday, 11:00. Order volume expectations remain mired in negative territory, with February coming in at -24. A slight improvement is expected for March, with a forecast of -20.
  3. Inflation Report: Wednesday, 7:00. Headline CPI has been moving higher and is expected to hit 0.8% in February. Core CPI is expected to remain at 1.4% for a third straight month.
  4. PMIs: Wednesday, 7:00. Manufacturing PMI has been showing prolonged expansion. The index is expected in at 55.0, little changed from 54.9. The Services PMI has posted four straight readings below 50, which indicates contraction. However, the estimate for March stands at 50.7. 
  5. Retail Sales: Friday, 7:00. Retail Sales plunged 8.2% in January, its worst showing since April. A turnaround is expected in February, with a forecast of 2.2%.

Technical lines from top to bottom:

We start with resistance at 1.4113 (mentioned last week).

1.4017 is next.

1.3908 has switched to resistance after GBP lost ground last week.

1.3812 is the first line of support.

1.3703 has held since the first week in February.

1.3636 is the final support level for now.

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I remain neutral on GBP/USD

The pound has been relatively quiet since flirting with the symbolic 1.40 level in late February. This week’s key CPI and retail sales data could shake up the pound, with the currency’s direction dependent on the strength of these releases.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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