US records 4% growth after weather-affected Q1

Last week, UK data was disappointing which led to a big slump in the pair's value. The most important data that contributed to this decline was manufacturing PMI (Actual: 55.4, Forecast 57.2,  Previous: 57.2, 01/08/2014). This week's data should give us a better insight of how well the UK economy is doing. There are several important data releases, which could help the Pound sterling, get back on track. These important data releases are construction PMI (Forecast 62.1, Previous: 62.6, 04/08/2014), services PMI (Forecast 58.1, Previous: 57.7, 05/08/2014) and manufacturing production (Forecast 0.7%, Previous: -1.3%, 06/08/2014). We also expect that the BoE (Bank of England) will hold the base rate at 0.5%. The rate hike when implemented will be gradual and limited as stated by MPC member Broadbent as not to hurt mortgage owners and borrowers.  

The US economy expanded by 4% beating market expectations of 3.1% (Previous: -2.9%, 30/ 07/2014). Q1 GDP was affected by adverse weather conditions, which caused output to drop considerably. However, there still exists slack in the labour market as the FOMC statement stated, which needs to be addressed. This was further displayed by both the ADP non-Farm employment change (Actual: 218K, Forecast 234K, Previous: 281K, 29/07/2014), unemployment rate (Actual: 6.2%, Forecast 6.1%, Previous: 6.1%, 01/08/2014), non-farm employment change (Actual: 209K, Forecast 231K, Previous: 298K, 01/08/2014). On a more positive note, the US economy has been adding 200k jobs for six consecutive months. Although it may show signs of a promising recovery it's still below expectations. This signals that there is still slack in the labour market and we won't be seeing a rate hike anytime soon. We also expect the Fed to continue to taper QE, which will end in October if all goes to plan. It's a jam-packed week for US data this week. This weeks data should provide us with some insight of how well the US recovery is going. We expect that the Fed will continue tapering by $10bn dollars this month. If the labour market data this week shows slack then we could see the rate hike being delayed. In addition, it will be difficult to please investors with GDP data as the margin between the forecast (3.1%) and the previous reading (-2.9%) is very wide. This allows room for disappointment.