Cable Forecast to Remain Supported as Key Data Looms
The British pound has witnessed a gradual decline against its US counterpart in recent weeks, but the outlook remains positive as the UK economy continues to accelerate at a strong pace.
The GBPUSD traded within a range of 1.6784-16832. The pair consolidated at 1.6795, declining 0.0.7 percent. The trend line shows initial support at 1.6773 and resistance at 1.6839.
Cable could see significant price action Tuesday with the release of industrial and manufacturing production data. The Office for National Statistics is forecast to show industrial production advanced 2.7 percent annually in April. Manufacturing production is forecast at 4 percent annually in the same month.
Last month the ONS said UK industrial production increased 2.3 percent annually in March versus estimates of 2.4 percent. Manufacturing production increased 3.3 percent, exceeding estimates of 2.9 percent.
The UK manufacturing sector remained elevated in May, according to latest PMI figures released last week. Markit Group’s gauge of UK manufacturing eased slightly from 57.3 to 57.0, as manufacturers posted strong growth in output, new orders and new export business. Manufacturing employment increased for the thirteenth consecutive month, Markit data showed.
On Tuesday the National Institute of Economic and Social Research will post its latest three-month GDP estimate. The UK economy expanded 1 percent between February and April, the NIESR reported last month.
The week’s biggest release comes Wednesday when the ONS posted employment figures for the month of May. The claimant count change is forecast to drop 25,000, following a slower than forecast drop of 25,100 in April. The unemployment rate, which fell to a five-year low in the first quarter, is expected to edge lower to 6.7 percent between February and April.
The US scheduled heats up later in the week with a monthly budget statement from the Bureau of Fiscal Services.
On Thursday the Commerce Department will report on retail sales, a key indicator of consumer confidence. Retail receipts are forecast to rise 0.3 percent in May, following a gain of 0.2 percent the prior month.
The Commerce Department will also report on business inventories for the month of April. Inventories are forecast to rise 0.4 percent, following an identical increase the prior month.
The University of Michigan will close out the week with a report on consumer sentiment.
Sterling will remain well supported as the UK’s domestic-led recovery continues to deepen. A stronger UK economy also reinforces expectations the Bank of England will be ready to raise interest rates early in the new year. BOE policymakers have discussed publicly the possibility of a rate hike.
Monetary Policy Committee member Martin Weale said last month the BOE could raise the cost of borrowing “sooner rather than later.”
The BOE has held interest rates at 0.5 percent for more than five years.
The extent of cable’s advance will depend on the strength of US recovery. Strong US data releases could keep the GBPUSD capped below the 1.70 target. Latest employment figures suggest the US economy has put winter volatility behind it. US nonfarm payrolls increased 499,000 in April and May combined.
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