The pound is steady in Friday trading, as the pair trades just above the 1.66 line in the North American session. In economic news, Trade Balance disappointed, as the deficit swelled to its highest level in September 2012. In the US, today's key events are PPI and Preliminary UoM Consumer Sentiment, so we could see some movement from GBP/USD during the North American session.
In the US, concerns about the job market eased after a solid Unemployment Claims release on Thursday. The key indicator dropped to 315 thousand, down from 323 thousand the previous week. This beat the estimate of 334 thousand and marked a three-month low. Core Retail Sales and Retail Sales both posted gains of 0.3%, which were within market expectations. These indicators are the primary gauges of consumer spending, and although the gains were modest, they mark an improvement over the January readings.
With Nonfarm Payrolls improving and Unemployment Claims dropping, the markets can breathe more comfortably as the Fed is likely to take its scissors and trim QE next week for the third time. New York Fed President William Dudley stated last week that the threshold to alter the Fed's program to wind up QE was "pretty high". In other words, short of a serious economic downturn in the US economy, we can expect the QE tapers to continue.
Testifying before parliament earlier in the week, BOE Governor Mark Carney reiterated that the Bank was in no rush to raise interest rates, noting that the economy may have spare capacity of up to 1.5% of GDP. Carney stated that any increase in rates would be done gradually and to a limited extent. With the UK economy continuing to expand, Carney continues to dampen expectations about any rate increases to prevent the economy from overheating. Meanwhile, other policy makers differ with Carey's forecast of spare capacity. Martin Weale, a member of the BOE's Monetary Policy Committee stated that the economy's slack is under the 1.0% level. The divergence in opinion could indicate a split regarding future monetary policy and this could impact on the pound.
GBP/USD 1.6610 H: 1.6657 L: 1.6603
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