British pound steady, deficit expected to balloon

It was a relatively quiet week for the pound, and the lack of movement has continued in Monday trading. In the North American session, GBP/USD is trading at 1.41.58, up 0.13% on the day.

On the fundamental front, UK Public Sector Net Borrowing is expected to balloon to GBP 32.5 billion in April, up from GBP 27.3 billion previously. As well, CBI Realized Sales, which measures sales volume, is expected to climb to 28 in May, up from 20 in April.

Last week wrapped up on a very positive note in the UK, with a surge in Retail Sales. Retail Sales jumped 9.2% in April, up from 5.4% beforehand and crushing the estimate of 4.5%. The surge was a result of the further reopening of the UK economy, particularly the opening of all non-essential retail businesses from April 12. After months of having to deal with strict health restrictions, consumers are chafing at the bit to get out and spend.

The US dollar remains under pressure, as expectations that the Fed might tighten monetary policy have largely dissipated. Several Fed policymakers have urged the Fed to discuss tapering QE in the coming months, but the market appears to have accepted the Fed’s message that inflation is transitory and that the US economy is still in need of massive stimulus through its QE programme. At the same time, if US numbers continue to point upwards, in particular inflation and employment numbers, then we are likely to see renewed speculation about tapering. This would mean a tightening of policy and would likely boost the US dollar.

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GBP/USD Technical Analysis

• GBP/USD is facing resistance at 1.4231. Above, there is resistance at 1.4310
• There are support lines at 1.4075 and 1.3998

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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