Will sterling maintain its positive outlook? | Smart Daily Currency Note
GBP/USD – 1.5519
Sterling, having enjoyed a strong period last week following the release of positive figures across the manufacturing, construction and service sectors, weakened against the US dollar on Friday. Growing employment data from the United States forced the UK currency to retrace some of its gains from earlier in the week by around a cent and weakened for the first time in three days against the euro. Prices however were nonetheless supported by official figures showing the trade deficit to have narrowed more than expected in April, improving to 8.2 billion pounds. Speculation still grows that the Bank of England under the stewardship of Mark Carney will alter its quantitative easing strategy as the UK continues to avert a triple-dip recession. Some suspect he will implement a growth mandate alongside the existing 2% inflation target which could enable the bank to step up its asset purchase facility to meet the requirement and cause a sell-off in sterling, though the case for increased asset purchases has been weakened by UK data striking a positive note recently. Manufacturing Production figures emerge on Tuesday and the Claimant Count unemployment change report around midweek will give more of an indication of underlying strength, or lack thereof, in the economy; call in throughout the week for the latest rates and developments in sterling value.
The US dollar found support at the end of last week as Non-Farm Payrolls data detailed that employment levels had risen by slightly more than expected. Many were anticipating employment data from the US to show a decline following the reports released earlier in the week, but the Bureau of Labor Statistics detailed that 175,000 jobs had been added to the economy in May – a slight increase on predictions, although the overall unemployment rate rose by 0.1%. The US dollar strengthened in most of its major pairings, though gains were diluted as the Federal Reserve stated that it would maintain its bond buying programme until the labour market improves substantially. That would involve four consecutive months of job growth averaging at least 200,000 according to Chairman of the Federal Bank. Friday’s data falls short of that mark, though the statement may help to provide more clarity and go some way as to settling previously feverish expectation as to when quantitative easing might be tapered back. Whilst midweek heralds the Federal Budget Balance report along with Industrial Production figures, important Retail Sales data on Thursday will precede the next University of Michigan Consumer Sentiment Report and PPI inflation figures. Many will be hoping the retail data will build on strong consumer sentiment in recent weeks as demand will be crucial in shepherding the world’s largest economy further along the road to recovery.