GBP/USD gained momentum, oil inventories declined

Forex News and Events

GBP/USD is gaining momentum as United Kingdom proved to have better managed winter months than the US. Retail sales came in way above expectation (1.2%m/m versus 0.2% consensus) on the back of strong March data – industrial production grew 0.7%y/y versus 0.1% consensus and manufacturing production grew 1.1%y/y versus 1% expected. The picture is not all bright however as headwinds arising from upcoming fiscal tightening may jeopardize economic expansion for the years ahead. Moreover, inflation slipped below zero for the first time in 50 years, delaying a potential rate hike from The Bank of England in 2016.

On the other hand, in the light of recent data from the US, it appears that the “temporary factors” have lasted longer than anticipated and are now undermining American’s mood (May Philadelphia Fed survey came in at 6.7 versus 8 exp, 7.5 prior read). All in all, we remain GBP/USD bulls and we expect the sterling to stay in its hourly uptrend channel. However, downside risk remains as traders keep a positive dollar bias while waiting for the US economy to take off. Today, the pair is consolidating around 1.5670 ahead of US CPI figures.

Crude Oil Inventories decline (by Yann Quelenn)

Oil price has jumped yesterday by more than 2% due to a decrease in the weekly US crude oil inventory data – the highest decline in the last four years. The total US commercial inventory remained at 482.2 million barrels declining by 2.7 million barrels. However, US Crude Inventories are still above last year’s level. As a result, West Texas Intermediate is now trading around $60 a barrel and reached briefly the $66 level. Iraq fighting provided traction to oil as worries about oil infrastructures are at stake.

The surge in oil prices is likely to have important consequences on the US economy. Let’s recall that Fed’s inflation target is at 2%. A stronger barrel will therefore help the US central bank to reach its objective. It is worth saying that US needs a stronger oil price to push up growth despite side effects on consumer spending. We also anticipate that a temporary surge will prevent the Federal Reserve to increase its cash rate as it would have a downside effect on oil price and therefore on growth. It would push inflation lower despite policymakers ‘ expectations to see inflation drifting back toward 2%.

Please note due to the upcoming holiday, the research reports will not be published on Monday, May 25 2015. All reports will resume on May 26.

Gold - Selling pressures have decreased