Thanks to the Martin Luther King Day holiday, FX markets were quiet-ish on Monday without the participation of US banks. But volatility has started to pick up with reduced Fed rate cut bets boosting US dollar across the board in the early European session on Tuesday. We are going to have some potentially market-moving macro data from around the world to look forward to later this week. Among these macro pointers, we will have some important UK data too, including CPI and retail sales, making the GBP/USD the currency pair of the week. What’s next for the pound?On Tuesday, during the European session, the GBP/USD was about 70 pips worse off, dropping below 1.2650. Sterling was hurt by UK data showing earnings grew at a less-than-expected annual pace of 6.5% in the three months to November. As well as weaker UK earnings data, reduced were helping to boost the US dollar across the board. FX traders are expecting officials from the FOMC to push back against March rate cut expectations more forcefully after both CPI and jobs data for December were stronger. Until Tuesday’s drop, concerns over the UK economy had been mostly ignored by FX traders. They had been happy to buy the GBP dips against all major currencies, especially the under-performing commodity dollars. But even against the US dollar, the pound has been able to hold its own well. The GBP/USD has spent several weeks consolidating its sharp gains made at the back end of last year, holding just below the 1.28 resistance level for most part. Let’s see if Tuesday’s drop will mark the end of that bullish trend or is going to be yet another trap for the bears.The reason why the pound has remained supported despite macro worries in the UK is the fact that the Bank of England has remained in the hawkish camp relative to a growing number of other central banks who have recently turned dovish. The BoE’s relatively more hawkish stance is due to the comparatively higher inflation in the UK than other major economies. As a result, inflation data will be very important to watch this week, but don’t forget that wages came in weaker, and this may encourage some MPC members to now opt for an earlier cut. Looking ahead to the rest of the weekAs mentioned, we will have some more important UK data (CPI inflation and retail sales for December) coming up later this week, which should provide more clarity on potential interest rate cuts from the Bank of England. From the US, this week’s economic calendar highlights include retail sales and consumer confidence on Friday. Here are the key macro events relevant to the GBP/USD to watch this week:
Date
Time (GMT)
Currency
Data
Forecast
Previous
Tue Jan 16
USD
Empire State Manufacturing Index
-4.9
-14.5
3:00pm
GBP
BOE Gov Bailey Speaks
Wed Jan 17
7:00am
GBP
CPI y/y
3.8%
3.9%
1:30pm
USD
Core Retail Sales m/m
0.2%
0.2%
USD
Retail Sales m/m
0.4%
0.3%
2:15pm
USD
Industrial Production m/m
-0.1%
0.2%
Thu Jan 18
1:30pm
USD
Unemployment Claims
204K
202K
USD
Building Permits
1.47M
1.47M
USD
Philly Fed Manufacturing Index
-6.9
-10.5
Fri Jan 19
7:00am
GBP
Retail Sales m/m
-0.4%
-0.5%
3:00pm
USD
Prelim UoM Consumer Sentiment
69.3
69.7
USD
Existing Home Sales
3.83M
3.82M
USD
Prelim UoM Inflation Expectations
3.1%
GBP/USD technical analysis(Click on image to enlarge)
