Fundamental Forecast for GBP: Neutral
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Even though the economic docket for both the U.K. & U.S. remains fairly light for the first full-week of June, GBP/USD may work its way back towards the top of its recent range as the dismal Non-Farm Payrolls (NFP) report dampens bets for an imminent Fed rate-hike.
Indeed, a slowdown in U.K. Industrial & Manufacturing Production may drag on the British Pound as threats of a slowing recovery encourage the Bank of England (BoE) to retain its highly accommodative policy stance for an extended period of time. However, headlines as well as opinion polls surrounding the U.K. Referendum may have a larger impact on near-term price action as we quickly wind down to the vote on June 23, with the sterling at risk of facing choppy/whipsaw-like price action over the coming days as market participants gauge the risk of an E.U.-exit.
At the same time, the dollar stands at risk of facing additional headwinds next week as U.S. Consumer Credit is anticipated to narrow in April, while the U. of Michigan survey is expected to highlight a downtick in household sentiment. A series of disappointing data prints may further undermine bets for two Fed rate-hikes in 2016 as the central bank remains ‘data-dependent,’ and the fresh batch of central bank rhetoric from Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren and Fed Chair Janet Yellen may dampen the appeal of the greenback should the 2016 voting-members adopt a more dovish outlook for monetary policy. With Fed Funds Futures now highlighting a less than 10% probability for a rate-hike at the June meeting, the greenback may continue to trade on a weaker tone next week amid waning expectations for higher borrowing-costs.
As a result, GBP/USD may largely preserve the range carried over from May as the economic as well as the monetary policy outlook for the U.K. & U.S. become increasingly clouded with uncertainty, but a wave of cautious comments from Fed officials may push Cable back towards the May high (1.4769) as interest-rate expectations falter.
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