Fundamental Outlook for British Pound: Bearish

- The Bank of England may consider including secured commercial paper purchases to their QE program
- According to DCLG, UK house price declines slowed during April
- Is GBPUSD’s rally temporary or a clear trend? Get the technical read on price action.

The British pound experienced broad weakness on Friday after spending most of the week as the strongest of the majors, as risk appetite continues to be one of the sole forces behind GBP/USD strength. In this coming week, though, fundamental forces could start to play a bigger role.

On Tuesday, the May reading of UK CPI is projected to fall to an annual rate of 2.0 percent from 2.3 percent . Such a result would mark a 19-month low and would also bring CPI in line with the Bank of England’s (BOE) target. Nevertheless, the central bank has said in the past that they expect inflation to full much lower later in the year, and greater-than-expected declines could spur fears that CPI will eventually fall negative.

On Wednesday, the minutes from the BOE’s June 4 meeting may not be as market-moving as they've been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds, but there are indications that they may increase the scope of the program even further as they recently published a paper in which they sought comments on the prospect of including purchases of secured commercial paper in their Asset Purchase Facility (APF). That said, the inclusion of secured commercial paper doesn’t necessarily mean that they will allocate more money toward the APF, and this is a detail that will be critical to British pound price action as past QE announcements have weighed on the currency. At the same time as this release, UK jobless claims will hit the wires and they are projected to rise for the fifteenth straight month in May, this time by 60,000, while the claimant count rate may rise to 4.9 percent, the highest since October 1997, from 4.7 percent.

Finally, on Thursday, UK retail sales are expected to rise for the third straight month in May, this time at a rate of 0.3 percent. That said, this is a very volatile release and the BOE has said in the past that they prefer to look at private surveys, indicating that perhaps we should do the same.

Antonio Sousa is a Currency Analyst for FXCM.