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Cable extends losses as Bullard weighs in

H.S. Borji
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The British pound declined for the second consecutive day against its US counterpart, as strong UK manufacturing data was offset by hawkish remarks from a US lawmaker.

The GBPUSD fell further below the 1.68 handle, declining 0.23 percent to 1.6765. Initial support is likely found at 1.6758 and resistance at 1.6829. Buyers are likely to emerge at 1.6670, the 100-day average.

The US dollar was bolstered after Federal Reserve Bank of St. Louis President James Bullard said the US central bank could raise interest rates sooner than expected. A rate hike by the first quarter of 2015 could be warranted if GDP, inflation and the labour market continue to improve as expected.

“If you get 3% growth for the rest of this year, if you get unemployment coming down below 6%, if you continue to have jobs growth at 200,000, if you continue to see inflation moving back up toward target, I think if we get to the fall of the year and all of those things are transpiring as I’m suggesting they will, that will change the conversation about monetary policy, and there will be more sentiment toward an earlier rate hike,” Bullard told reporters after a speech on Monday.

The US economy added 499,000 nonfarm payrolls combined in April and May, according to the Labor Department. The unemployment rate fell to 6.3 percent in April.

The Fed is currently in the process of reducing its record stimulus program, paving the way for its full elimination by the fall. The central bank has pared asset purchasing by $40 billion since December 2013. The Fed’s next policy meetings will take place June 17-8 in Washington. Inflation and growth projections will accompany the Fed’s official rate statement next week.

In economic data, British industrial production advanced 0.4 percent in April, matching estimates, the Office for National Statistics reported today. Year-on-year, industrial production accelerated 3 percent, outpacing expectations for 2.8 percent.

Manufacturing production – a short-term gauge of UK manufacturing activity – also increased 0.4 percent in April, as expected. Year-on-year, manufacturing production accelerated 4.4 percent, higher than forecasts.

The ONS will release official employment data Wednesday. Claimant counts for the month of May are forecast to fall 25,000. The unemployment rate is expected to fall to 6.7 percent.

Strong UK fundamentals will keep the pound elevated over the short-term, as policymakers devise a strategy to shore up interest rates. The Bank of England has publicly discussed the possibility of a change in monetary policy, and officials have claimed the process could begin soon.

The BOE will become the first major central bank to increase borrowing costs, experts say.

In other trading, the pound edged higher against the euro. The EURGBP declined 0.12 percent to 0.8080. The trend line shows initial support at 0.8077 and resistance at 0.8114.

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