GBPUSD meanders above 1.6750 after retracing from nearly a five-year high after employment data shows that the unemployment level in the United Kingdom fell to 6.9 percent, falling .3 percent from analyst expectations of 7.2 percent. Bullish traders on Sterling have seen GBPUSD gain 9.83 percent over the last year on hopes of an interest rate hike.
The problem is that Bank of England (BoE) Governor Mark Carney has distance himself from the unemployment rate tether, and a rate hike could be father off than traders speculate. The BoE expects to keep their low rate policy for sometime even though the housing market is getting awfully frothy, to say the least.
“You buy sterling because the growth rate is looking anchored at a reasonable level,” said Peter Frank, head of global G10 and Asia FX strategy at Banco Bilbao Vizcaya Argentaria. However, the Sterling may not be at reasonable levels, and some traders may see the positive data and a potential rate increase baked into current prices.
One aspect that could put a damper on the Sterling is Britain’s current-account levels near all-time lows:
Exports have suffered greatly as the higher exchange rate will continue to make UK manufacturing less competitive. Countries with large current-account deficits greatly depend on foreign investment to sustain growth. The BoE and Treasury are counting on continued investment and international demand to continue propping the economy higher.
This week, the United Kingdom will report on the MPC asset purchase facility and bank rate on Wednesday. Friday, retail sales will report with economists expecting a decline by .4 percent from the 1.7 percent in the month earlier.
GBPUSD has seen support on the bottom of the channel at 1.6770, while the short week could skew the momentum. Price action has remained limited along the 20 EMA on the 4H chart. Early trade could have the pound trade higher to 1.6825, but a stronger dollar could limit upside until key data points are reported this week.
Look for the pair to remain at the bottom of the channel, while a break below will send price action to a support level of 1.6735/50.
Price action may trade higher on positive data and attempt to trade higher to 1.6888.