British Pound v Dollar Forecast to Climb Higher
The British pound took a knock against the US dollar on Wednesday the 15th of June on news that UK unemployment has crept higher.
Despite this we remain confident in forecasting an extension of recent gains.
The decline in the pound to dollar exchange rate back towards 1.56 did however put an end to successive days of gains for the pairing which has managed to recover from a low of 1.5530 reached on the 8th of July.
At the time of writing the inter-bank market is pricing the GBP-USD at 1.5615 while high-street banks are offering rates in the region of 1.5178 for international payments.
Independent currency payments are quoting close to the market with a rate of 1.5428 being seen.
GBP Falls Against USD on Employment Data
The mid-month session brought with it some crucial data on the state of the UK labour market; traders were dealt a surprise by news that unemployment in the UK has actually increased.
“UK Claimant count rose for the first time since 2012 putting a dent into the pound rally in early London trade today, but the pair held above the 1.5600 level buoyed by recent hawkish talk from the MPC,” notes Boris Schlossberg from BK Asset Management.
The claimant count rose to 7.0K from -8.9K eyed while the unemployment rate increased to 5.6% from 5.5% forecast.
Even the average wages earned missed their mark printing at 3.2% vs. 3.3% - but were still considerably better than the 2.7% the month prior.
“The labour data shows a slight slowdown in UK demand but the market appeared unconcerned especially since wage continued to rise at healthy pace,” says Schlossberg.
Bullish Talk from Bank of England Keeps GBPUSD Bid
Perhaps the most surprising aspect with respect to cable this week was decidedly hawkish turn in rhetoric by various MPC members.
Yesterday BoE Governor Mark Carney stated that rate hikes were coming sooner rather than later and that bombshell was followed by speech from the usually dovish Miles who went out of his way to note that BoE did not need to follow the Fed and could establish its own path towards rate normalisation.
“The central bank talk has given sterling just the boost it needed and the pair is now squarely back in the uptrend having made a higher low at the 1.5400 figure. The pair still faces stiff resistance at 1.6000, but if the market begins to believe that BoE could be the first G-7 central bank to move on rates the rally in cable could be just beginning,” says Schlossberg.
Brace of Strong US Ecostats Boost the US Dollar
It is not all about the GBP side of the GBPUSD equation though with some strong data coming out of the US providing support to the Greenback.
US industrial production rose for the first time in June 2015 since March, with the headline industrial production index edging upward by 0.3%.
The increase, which slightly exceeded market expectations for a 0.2% gain, followed unrevised declines of 0.5% and 0.2% in April and May, respectively; however, March was revised higher (to 0.2% from 0.0%).
US producer prices increased by 0.4% in June 2015, thereby exceeding market expectations for a 0.2% increase following a 0.5% jump in May.
The annual rate of change in the headline index rose to -0.7% from -1.1% in May and a recent low of -1.3% in April.
Excluding the volatile food and energy components, core producer prices rose by 0.3% in June following a 0.1% increase in May. The year-over-year rate increased to 0.8% from 0.6% in the previous month.
The strong data will keep alive assumptions that the US Federal Reserve will raise interest rates in September.
It is the anticipation of higher interest rates that will keep the dollar bid across global exchange rate markets over coming days.
