The employment numbers were better than expected and the MPC Meeting Minutes were somewhat more hawkish than expected. However, the pound doesn’t show strength against the dollar.
The overwhelming USD strength is taking over at the moment, but when the dust settles, GBP certainly has room to the upside.
Claimant Count Change (or jobless claims) dropped in July by 29.2K, around double the early expectations for a drop of 14.3K. In addition, June’s already excellent drop was revised to bigger one: 29.4K instead of 21.2K initially reported.
While the unemployment rate for June remained unchanged at 7.8% yet again (and as expected), it seems that the labor market is on the right track.
The MPC Meeting Minutes revealed the discussion towards the announcement on forward guidance. So, one member, Martin Weale, opposed this decision: he wanted a shorter term horizon for the 2.5% inflation “knockout” and voted against the decision, revealed later around the BOE Inflation Report.
The British Pound
Despite the good data and hawkishness, GBP/USD is only marginally higher: at 1.5473 at the time of writing after 1.5465 beforehand. It did spike higher at reach 1.5505, but the move was short-lived.
Against the euro, sterling made a somewhat bigger advance: from 0.8580 to 0.8564. The limited reaction can be attributed to the better than expected European growth figures.
But the reaction against the greenback is due to the greenback’s strength: contrary to the previous week, it seems that markets are now pricing a tapering in September. The mood regarding the dollar during this summer comes and goes. Generally speaking, we’ll get a higher dollar on a certain QE tapering, but there’s still time.
When the mood changes against the dollar (or just becomes a bit more neutral), the British pound has better prospects to rise than other currencies.
Further reading: GBPUSD forecast.
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