GBP/USD on track for second weekly gains ahead of US retail sales data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on May 14, 2021
  • The GBP/USD pair is on track to rise for the second straight week.
  • Economic data from the US and UK hints to a possible tightening phase.
  • Analysts at ING are optimistic about the British pound.

The GBP/USD is on track for the second consecutive weekly gain as the US and UK economic recovery advances. The pair is trading at 1.4057, which is 1.65% above where it started the week. 

GBP/USD
GBP/USD chart

UK and US economic recovery in progress

Data published this week showed that the US and UK economies are advancing, thanks to the progress on vaccinations. 

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On Tuesday, data by the Office of National Statistics (ONS) showed that the UK economy rebounded by 2.1% in March. This recovery was broad-based as the manufacturing, construction, industrial, and manufacturing sectors rebounded. 

The data came a day after another reading by the British Retail Consortium (BRC) showed that the sector continued to do well in April. Other numbers from the country like home sales, retail sales, and PMIs have been relatively strong. The GBP/USD also received a boost from the previous Scottish parliamentary election. As such, analysts are pricing in a situation where the Bank of England (BOE) will start tightening soon.

Similarly, in the United States, data released this week were positive. The headline consumer price index (CPI) data rose by 4.2% in April while the producer price index (PPI) rose by more than 6% during the month. Initial jobless claims also declined, hinting that the labour market is tightening. Therefore, analysts believe that the Federal Reserve will tighten faster than expected.

Later today, the focus will shift to the latest US retail sales numbers. Analysts believe that the sales will be lower than where they were in March when the government passed the stimulus package. Therefore, the sales numbers will likely not have a major impact on the GBP/USD. In a note, analysts at ING made their case for sterling, saying:

“In the bigger picture we do think GBP will derive benefit from the shift from growth to value investing in equity markets, where US markets are dominated by tech, but the UK has bigger weights to value stocks such as financials and energy.”

GBP/USD forecast

GBP/USD
GBP/USD price action

On the four-hour chart, we see that the GBP/USD price seems to be forming a wide cup and handle pattern. This is usually a sign of continuation. Overnight, it declined and tested the important support at 1.400, where it had struggled to move above before. Therefore, the pair will likely rebound as investors target the upper side of the cup. A dip below the support at 1.400 will invalidate this prediction.

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