This coming Wednesday represents a crucial day for the Cable. After unexpectedly transitioning from recording a fresh five-year high (1.7189) to declining by over 400 pips within a month, it’s not unreasonable to be under the impression that the bears are in control. However, I must admit that I was enjoying watching the GBP bulls display resilience when the chips were down and I am left pondering whether the GBP bulls possess enough strength to charge out of the gates once more.
Wednesday could be the day, and below is why:
At 11.30 AM, the latest UK Jobless Claims are announced. A lower UK unemployment rate remains a crucial factor behind a Bank of England (BoE) rate increase and Governor Carney has previously hinted that a 6% unemployment rate might influence the Bank’s decision. At present, the UK unemployment rate stands at 6.5% and economists are predicting a decline of around 30,000 jobless claims tomorrow morning.
If the UK unemployment rate is also announced as having declined, expect the GBP bulls to receive a boost. There are certainly reasons to be optimistic for the Jobless Claims release. For example, the BBC published a story over the weekend that UK hiring plans are at a 16-year high. According to accountancy firm BDO, July’s job index (which measures corporations hiring plans over a 3-month period) is at its highest level since 1998. Furthermore, last Tuesday’s announcement that July’s UK Services PMI rose to a nine-month high (59.1) should also complement the employment report. Reason being is that although the Services sector is frequently referred to as the UK’s primary GDP contributor, it is also responsible for employing a widely reported 80% of the UK labour force.
To be honest, what the GBP bulls really need to feel inspired again is not necessarily another 30,000 decline in jobless claims, but confirmation of a declining UK unemployment rate. The markets are currently estimating a 6.4% unemployment rate being recorded but looking at the impressive Services PMI, I see the potential for an even lower UK unemployment rate being announced. If this occurs and as we edge closer to what appears to be a 6% threshold target, expect a GBP bull charge.
From here, which direction the GBPUSD fluctuates will be largely dependent on how the markets react to the BoE Inflation Report (12.30PM). Governor Carney is widely expected to provide clarity tomorrow on the potential timeframe for an interest rate hike, after the bank received heavy criticism for sending contradictory messages regarding the matter.
In my view aside from escalating geo-political tensions increasing demand for the USD, a primary factor behind the recent GBPUSD decline is not due to weakening UK fundamentals, but investors losing patience with the BoE.
The fact that it appears the BoE Inflation Report will be centered around Carney’s thoughts on a BoE rate hike, suggests to me that an interest rate increase is being internally discussed. Therefore despite the recent 400 plus pip decline in the Cable, I do not think the bulls are quite finished yet.
By all means with the stage looking reasonably set up for a reversal on Wednesday, this likely will be the bull’s last throw of the dice.
Wednesday could be the day, and below is why:
At 11.30 AM, the latest UK Jobless Claims are announced. A lower UK unemployment rate remains a crucial factor behind a Bank of England (BoE) rate increase and Governor Carney has previously hinted that a 6% unemployment rate might influence the Bank’s decision. At present, the UK unemployment rate stands at 6.5% and economists are predicting a decline of around 30,000 jobless claims tomorrow morning.
If the UK unemployment rate is also announced as having declined, expect the GBP bulls to receive a boost. There are certainly reasons to be optimistic for the Jobless Claims release. For example, the BBC published a story over the weekend that UK hiring plans are at a 16-year high. According to accountancy firm BDO, July’s job index (which measures corporations hiring plans over a 3-month period) is at its highest level since 1998. Furthermore, last Tuesday’s announcement that July’s UK Services PMI rose to a nine-month high (59.1) should also complement the employment report. Reason being is that although the Services sector is frequently referred to as the UK’s primary GDP contributor, it is also responsible for employing a widely reported 80% of the UK labour force.
To be honest, what the GBP bulls really need to feel inspired again is not necessarily another 30,000 decline in jobless claims, but confirmation of a declining UK unemployment rate. The markets are currently estimating a 6.4% unemployment rate being recorded but looking at the impressive Services PMI, I see the potential for an even lower UK unemployment rate being announced. If this occurs and as we edge closer to what appears to be a 6% threshold target, expect a GBP bull charge.
From here, which direction the GBPUSD fluctuates will be largely dependent on how the markets react to the BoE Inflation Report (12.30PM). Governor Carney is widely expected to provide clarity tomorrow on the potential timeframe for an interest rate hike, after the bank received heavy criticism for sending contradictory messages regarding the matter.
In my view aside from escalating geo-political tensions increasing demand for the USD, a primary factor behind the recent GBPUSD decline is not due to weakening UK fundamentals, but investors losing patience with the BoE.
The fact that it appears the BoE Inflation Report will be centered around Carney’s thoughts on a BoE rate hike, suggests to me that an interest rate increase is being internally discussed. Therefore despite the recent 400 plus pip decline in the Cable, I do not think the bulls are quite finished yet.
By all means with the stage looking reasonably set up for a reversal on Wednesday, this likely will be the bull’s last throw of the dice.
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