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Economic Data to Test Cable’s Upward Recovery Next Week

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Economic Data to Test Cable’s Upward Recovery Next Week

The British pound is on pace to advance 0.3 percent against its US counterpart this week, with latest testimony from the Bank of England suggesting the economy may warrant a change in policy sooner rather than later.

Next week will provide a key test for the GBP/USD, which was on its heels Friday amid weaker UK trade data and strong US nonfarm payrolls.

The GBPUSD declined 0.14 percent to 1.6793 on Friday, after advancing to an intraday high of 1.6841.

The EURGBP remained under pressure Friday, after falling to an intraday low of 0.8071 on Thursday. The pair was trading at 0.8122, declining 0.04 percent after hitting a Friday low of 0.8100.

In economic data, the UK trade deficit widened in April, official data showed. The trade deficit widened from -£8.283 billion to -£8.924 billion, as manufacturing exports waned.

Meanwhile, US nonfarm payrolls rose in line with market expectations as the world’s largest economy recouped all the jobs it lost during the recession. Nonfarm payrolls advanced 217,000 in May, following a revised gain of 282,000 the prior month.

The UK Office for National Statistics will report on key fundamentals in the early part of next week, giving investors the opportunity to size up British recovery and postulate the course of monetary policy. Strong economic releases could vindicate the pound bulls and spur another test of the key 1.70 level.

On Tuesday the ONS will report on industrial and manufacturing production. Industrial production is forecast to rise 0.3 percent in April, following a decline of 0.1 percent the prior month. Year-on-year, industrial production is forecast to grow 2.7 percent. Growth in manufacturing production is estimated at 0.4 percent. Year-on-year, this translates into a gain of 4 percent.

The National Institute of Economic and Social Research will post its three-month GDP estimate Tuesday, covering the period March through May. The NIESR reported last month the UK economy expanded 1 percent between February and April, following a gain of 0.9 percent in the previous three-month period.

On Wednesday the ONS will post key employment data. The UK unemployment rate fell to a five-year low in the first quarter, as job growth continued to support the country’s domestic-led recovery. The unemployment rate is forecast to drop from 6.8 percent to 6.7 percent in the three months through April, according to forecasts.

The pound is still supported by monetary policy expectations, supporting the view the currency could rise sharply next week following the release of key data. BOE Governor Mark Carney noted this week the UK recovery was getting closer to the point where a change in policy would be warranted. The BOE is expected to become the first major central bank to raise interest rates.

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