GBP/USD Fundamental Forecast – June 16, 2016

The GBP/USD was trading at 1.4161, up 0.0051 or +0.36%. Aiding the recovery by the British Pound was news that UK employment and earnings data smashed expectations. The news suggests that the UK economy may not be in such bad shape heading into the June 23 referendum that will decide whether the UK remains a member of the EU or leaves.

The UK claimant count defined predictions and fell once more as employment rates pushed up to record levels. Meanwhile, UK wages grew at a much faster rate than analysts had expected, suggesting the Bank of England may have to raise interest rates sooner than many are expecting, once Brexit passes.

The number of people claiming benefits dropped by 4,000 in the last month to 746,100, however, the April figure has been revised to show an increase of 6,400 due to people claiming the out of work element of the Universal Credit. Economists were only forecasting a decline by 1,000.

Overall, though, the figures are encouraging with the claimant count dropping by 47,900 on the same period last year.

Unemployment fell by 20,000 in the quarter leading up to April and now stands at 1.67 million, the lowest since the spring of 2008. The employment rate now stands at 5%.

The three-month average weekly earnings increased by 2% over the last year but fell 2.3% excluding bonuses. The average earnings rate including bonuses was only forecast to rise 1.7%.

August crude oil pared losses as the U.S. Energy Information Administration reported crude stockpiles fell for a fourth straight week. According to the EIA, U.S. commercial crude inventories fell by 933,000 barrels to a total of 531.5 million barrels in the week ending June 10.

The Fed is unlikely to raise interest rates at the end of its two-day policy meeting on Wednesday following a recent batch of weaker-than-expected U.S. data, led by the non-farm payrolls report for May which showed employers added the fewest jobs since September 2010.

Traders will be focused on the Fed’s dot plot (summary of economic projections) and what Janet Yellen has to say about the timing of the next rate hike so traders should expect volatility. A dovish outlook should produce weakness in the U.S. Dollar which should underpin the Euro, British Pound, Gold and Crude Oil. Gains in the Euro, Sterling and Crude Oil markets will likely be limited because of Brexit fears. Hawkish commentary should be supportive for the U.S. Dollar. Losses in gold will likely be limited because of concerns about the UK leaving the European Union.

In other U.S. economic news, industrial production declined 0.4 percent in May and April’s figure was revised lower to show a 0.6 percent increase versus the previously reported 0.7 percent. May capacity utilization edged lower from the prior month to 74.9 percent.

The producer price index rose a slightly more-than-expected 0.4 percent in May, following a 0.2 percent rise the prior month, the Labor Department said. In the 12 months through May, PPI fell 0.1 percent after being unchanged in April. The June Empire State Manufacturing Survey rose to 6.0 from a negative 9 reading last month.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Today’s economic releases:

Upcoming Economic Events that you should be monitoring:

Thursday, June 16, 2016

Government Bond Auctions

Jun 15 10:30 Denmark Holds bond auction

Jun 15 11:30 Germany Eur 4bn 0.50% Feb 2026 Bund

Jun 15 17:20 Sweden Details of bond auction on Jun 22

Jun 16 10:30 Spain Holds bond auction

Jun 16 10:50 France Eur 5-6bn 0.5% Nov 2019, 0% May 2021 & 1.75% May 2023 OATs

Jun 16 11:03 Sweden Sek 0.5bn 4% 2020 & Sek 0.5bn 0.25% 2022 I/L bonds

Jun 16 11:50 France Eur 0.75 – 1.25bn 0.1% Jul 2021 & 1.85% Jul 2027 OATeis

Jun 20 11:00 Belgium Holds OLO auction

Jun 22 11:03 Sweden Holds bond auction

Jun 22 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jun 22 17:20 Italy Details of Zero-coupon/BTPei auction