Fundamental Forecast for British Pound: Neutral

- UK GDP rises less than expected, but still shows economy emerging from recession
- GfK consumer confidence suggests UK sentiment is improving
- Comments from BOE’s Sentance suggest QE could end in coming week

The British pound lagged at the end of the past week as GBPUSD broke down from a wedge formation and EURGBP bounced from support at 0.8653. The only UK data on hand was actually positive, as the Nationwide house price index rose for a ninth straight month in January, this time by 1.2 percent, which pushed the annual rate up to a 2+ year high of 8.6 percent from 5.9 percent.

Looking ahead to next week, the Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent on Thursday at 7:00 ET, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement, which has consistently been the prime “news event” of recent rate decisions.

Last month, the BOE indicated that they would likely wait until their February meeting before considering any changes to the Asset Purchase Facility (APF), which is currently aiming to purchase £200 billion worth of high quality assets. At this point, the markets are betting that the BOE will end the program altogether, which has to the potential to push the British pound higher. However, if the central bank suggests that they could still add to the program later in the year, the currency is likely to falter.

Other indicators due to hit the wires ahead of the rate decision include the final December reading of M4 money supply, which may actually suggest that the BOE’s quantitative easing efforts haven’t had a measurable impact. Additionally, PMI construction is projected to slip to 47.0 for the month of January, signaling a continuing contraction in building activity. Finally, Nationwide consumer confidence is anticipated to edge up to 70 for the month of January from 69. All told, though, none of these are likely to be very market-moving for the British pound. Instead, traders will be pricing in expectation for Thursday’s rate decision and will be taking cues from any comments made by BOE officials.

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