Forex Market: GBP/USD hovers near 1-month highs after IMF revises up UK growth forecast, trade deficit narrows

The UK pound hovered near the strongest level in a month against the US dollar, after the International Monetary Fund revised up its UK growth forecast and the nations deficit unexpectedly narrowed in February.

GBP/USD hit a session high at 1.6758 at 12:37 GMT, after which consolidation followed at 1.6755, adding 0.04% for the day. Support was likely to be found at April 8th low, 1.6607, while resistance was to be met at March 7th high 1.6786.

The UK trade deficit narrowed to 9.094 billion pounds in February, exceeding analysts expectations for a drop to 9.200 billion pounds from 9.793 billion pounds in the previous month, which was the highest since September last year, data by the Office for National Statistics (ONS) showed today.

A separate report by the ONS revealed that the BRC shop-price index plunged 1.7% in March from a year ago, following a 1.4% drop in the previous month. Analysts had projected a 1.5% decline.

“While data has been mixed recently, the glass is more than half full in the case of sterling,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London, cited by Bloomberg. “But from a trading point of view, a lot of good news is already priced in. It will take something large for the pound to appreciate further, such as the Bank of England indicating it might have to raise rates sooner than the market thinks.”

According to estimates by the IMF, the British economy will expand at the fastest pace among developed nations, which provided further support to the pound.

The UK economy will expand 2.9% this year and 2.5% in 2015, IMF reported yesterday in its World Economic Outlook. The International Monetary Fund forecast in January that the nation GDP will grow 2.4% this year and 2.2% in 2015. However, the fund underlined that the recovery of the economy remains uneven and the central bank of the country should continue with its accommodative policy.

Meanwhile, demand for the US dollar was heightened ahead of the release of the Federal Reserve minutes from its latest policy meeting, as investors assessed when the central bank will start raising interest rates.

At 18:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on March 18th-19th. The minutes offer detailed insights on FOMC’s monetary policy stance. High volatility is usually present after the publication.

At 19:30 GMT Fed President for Chicago Charles Evans is expected to take a statement. He was a FOMC voting member in September – December 2007, 2009 and 2011. Statements by FOMC members attract investors’ attention, as they may offer clues over the possible direction of monetary policy in the future. Evans’s remarks may indicate a positive or negative trend in a short term.