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British Pound is Down but Not Out – Watch Key Labor Figures

Fundamental Forecast for British Pound: Neutral

A key disappointment from a highly-anticipated Bank of England policy meeting pushed the British Pound to fresh monthly lows versus the US Dollar. Yet surprising resilience suggest traders aren’t quite ready to push the GBP lower just yet.

The British Pound previously gained against major counterparts as traders speculated that the Bank of England could raise interest rates sooner than previously anticipated. Yet the results from this past week’s BoE Decision showed that only one Monetary Policy Committee member voted in favor of a rate hike; analysts had predicted two or three of the nine members would buck the consensus.

The result wasn’t necessarily a disaster as interest rate futures now point to a BoE move through the middle of 2016. Yet it will be especially important to watch for surprises out of future economic data releases—particularly those linked to employment and inflation.

Upcoming UK Jobless Claims figures will be of special interest as Bank of England Governor Mark Carney made clear that interest rate policy will depend on economic data. Current consensus estimates predict that the Claimant Count Rate—the percentage of eligible workforce participants claiming unemployment benefits—remained near multi-decade lows through July. Just as importantly, economists expect that Average Weekly Earnings growth remained near its highest in five years through June. Downside surprises in either could force fairly important losses in the British Pound.

A notable drop in FX volatility prices suggests that we are relatively unlikely to see big moves in the days ahead. Yet that could quite clearly change on any unexpected news out of key economic figures. - DR