GBP/USD Forecast Dec. 15, 2011, Fundamental Analysis

On Wednesday, the pair showed some fluctuations with one eye on the U.K. data and another on the general sentiment.

U.K. data signaled that unemployment hovered around the highest level in 17 years in the three months ended Oct. Jobless rate for the three months ended Oct. lingered at 8.3%, in line with analysts’ forecasts; the number of people without jobs surged by 128,000 to 2.64 million to the sharpest rise since 1994.

The number of youth (from 16 to 24 years old) increased by 54,000 to 1.03 million from Aug. to Oct.

On the other hand, jobless claims rose to less than forecast to 3.0 thousands in Nov. to 1.6 million, above the revised 2.5 thousands recorded in Oct. yet below projections of 13.7 thousands, whereas claimant count rate came in at 5.0%, lower than forecasts of 5.1%.

The data add to worries and increases speculations the BoE may add to stimulus at the beginning of 2012, especially with the slowdown in inflation to 4.8% in the year ended Nov.

Moreover, investor’s attention remained at the world’s hot spot after last week’s EU summit as the Italian treasury sold 3 billion euros of five-year bonds in an auction that witnessed a decline in demand and rise in yield. The selling reached the maximum target with a demand of 1.42 times compared with 1.47 last month, while the yield edged up to 6.47% from 6.29% the previous auction.

Tensions increased as the Bank of Spain announced today that Spanish banks borrowed an average of 98 billion euros from the ECB in November, which is the highest in more than 12 months.

In addition, German Chancellor Angela Merkel refused raising the upper limit, which was expanded to 500 billion euros, for the European Stability Mechanism (ESM) which will become effective by mid 2012, according to two officials familiar with the discussions.

On Thursday, at 08:30 GMT, the UK will release retail sales for Nov.; analysts are predicting 0.4% drop in the reading with auto fuel from 0.6% advance in Oct. As of 13:00 GMT, CBI trends for the month of Dec. will be available.

For the US, eyes will be on a batch of US data including the release of PPI for Nov. at 13:30 GMT, where the annual reading excluding food and energy will be steady at 2.8%, according to median forecasts. At the same time, both empire manufacturing for Dec. and jobless claims report will be out. At 14:15 GMT, industrial production and capacity utilization for July will be out. Thereafter, particularly at 15:00 GMT, Philadelphia Fed will be available.