British Pound (GBP) Exchange Rate Forecast: Could Employment Data Spark Sterling Surge?
This week disappointing UK reports have left the Pound Sterling exchange rate broadly weaker.
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The GBP/USD and GBP/EUR exchange rates are both on track to enter the weekend in a softer position.
Declines in the British asset were triggered early in the week as the UK released uninspiring Industrial and Manufacturing Production reports.
As investors had become accustomed to UK reports delivering positive surprises, the news that industrial production dropped by -0.7% in May while Manufacturing Production slid by -1.3% wasn’t well received.
Although Pound Sterling losses were limited by the National Institute of Economic and Social Research’s growth report (which estimated GDP expansion of 0.9% in June) data published later in the week showed a softening in both UK house prices and shop prices.
The Pound came under additional pressure on Thursday as the UK’s trade deficit was shown to have swollen to its largest for four-months.
The Bank of England’s rate decision, which also took place on Thursday, offered no surprises and merely bored investors.
This run of below-forecast UK figures was completed when a report published on Friday detailed a -1.1% decline in domestic construction output in May. In the three months to May, output was 0.8% softer.
A 0.9% increase had been expected and Markit economist Chris Williamson noted that this week’s lacklustre fundamentals ‘suggest that policymakers will be encouraged to err on the side of caution about hiking interest rates too early in what looks to be a still-fragile recovery.’
As Friday progressed the Pound was in line to record a five-day drop against almost all of its 16 most traded currency counterparts.
However, we forecast that the Pound Sterling exchange rate could enjoy a rebound next week.
Several influential economic reports for the UK are due out next week, including the nation’s inflation figures and employment data.
The resilience of the UK’s employment sector has been notable over the past few months, and another upbeat report could be just the push the Bank of England needs to start pencilling in a rate increase in November.
In the three months to April the UK added 345,000 positions, with the unemployment rate coming in at 6.6%.
However, near stagnant wage growth caused BoE Governor Mark Carney to adopt a more dovish attitude on the subject of interest rate increases.
If the employment data for May shows a more substantial increase in average weekly earnings, it would add to the case in favour of a rate hike and the Pound Sterling exchange rate could stage an impressive rally.
That being said, any signs that the pace of UK inflation is falling further below the BoE’s target levels could keep pressure on the Pound.
The British Pound to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.2575 and the Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading in the region of 1.7113.