While the markets at large focus on the FOMC meeting later today, the European trading session is packed with the high impact labor market data from the UK and the Bank of England meeting minutes, not to forget the UK annual budget release as well.
Consensus
- Claimant count change, expected -30.6k
- Unemployment change expected 5.6%
- Average earnings index, expected 2.2%
- MPC bank rate votes, expected 0-0-9
The British Pound has been largely trending lower after what seemed like an impressive comeback few weeks ago when especially the Cable managed to rally as far as to 1.55 levels but failed to hold on to its momentum. Last week, BoE Governor Mark Carney in a speech expressed concerns about the higher exchange rate of the British Sterling and its impact on inflation, which promptly sent the Cable lower as markets viewed the comments as a hint to a delayed rate hike, possibly as late as 2016 against the prevailing views of an earlier rate hike towards the last quarter of 2015.
The other BoE members were also vague in their speeches with some commenting that there is an equal chance of both a rate cut and a rate hike from the BoE should inflation persist at its current levels.
A major factor in the BoE’s view has been inflation, which has also plagued other economies, most notably, Japan where the BoJ has also taken a similar stance in projecting that the short-term inflation could dip towards zero in the near term.
Today’s MPC meeting minutes will, therefore, be of importance especially in terms of the number of votes, which as of last meeting was unanimous in keeping monetary policy steady. While this has already been priced in, any surprises in terms of dissent could see a sharp rally in the British Pound.
At around the same time, the monthly employment data will also be released from the ONS (Office for National Statistics). Market consensus is poised to see another steady decline in the claimant count by -30.6k and there are also expectations for the unemployment rate to dip lower to 5.6%. If the data does match expectations, this would mark a third consecutive month of improvement in the unemployment rate, taking it to November 2006 levels (pre-crisis era).
An upbeat employment data could possibly see some bullish momentum build up into the British Sterling, at least against its weaker peers such as the Canadian, Australian and Kiwi Dollar.
Of all its peers, the British Pound is weak only against the Greenback while it underwent a major correction on the GBPJPY. The GBPNZD currency pair remains range bound and choppy, leaving GBPCAD and GBPAUD well poised to make further gains in an upbeat employment data.
However, any gains led from the employment and BoE minutes are likely to see risk from the annual budget release scheduled a couple of hours later followed by the big event, the FOMC monetary policy decision due later in the US trading session, which could see some volatile price action that could potentially impact any gains made on the British Pound during the day.
