HomeContributorsFundamental AnalysisBritish Pound Gains Ground on Strong UK Unemployment Report

British Pound Gains Ground on Strong UK Unemployment Report

GBP/USD has posted gains in the Wednesday session. In North American trade, the pair is trading slightly above the 1.22 level. On the release front, British unemployment rolls declined by 13.2 thousand, much better than expected. Wage growth dipped to 2.2%, shy of the estimate of 2.4%. In the US, it’s a very busy day. There were no surprises from key consumer reports, as retail sales and CPI posted small gains in February. Today’s highlight is the Federal Reserve policy meeting, with the central bank widely expected to raise the benchmark rate a quarter-point, from 0.50% to 0.75%. On Thursday, the Bank of England is expected to maintain the benchmark rate at 0.25%. The US will release a host of key indicators, led by unemployment claims.

The political machinations over Brexit have continued this week. On Monday, the House of Lords backed down and voted through the Brexit bill without making any changes. This move means the bill will be passed into law, allowing Theresa May’s government to trigger Article 50 and formally declare Britain’s intent to leave the European Union. There had been speculation that May might invoke Article 50 on Tuesday, but the government said it will not do so until later in March. Under Article 50, the negotiations are slated to take up to two years. Relations between Britain and the EU have nosedived since the stunning Brexit vote in June. The timing of invoking Article 50 comes at a particularly delicate time for Europe, as the Netherlands holds elections on Wednesday and France goes to the polls in April.

All eyes are on the Federal Reserve, which will issue a rate announcement later on Wednesday. With the markets expecting a quarter-point rate hike on Wednesday, will the currency markets react to a Fed move? Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move could boost the dollar at the expense of gold. Strong US employment numbers in February have reinforced market speculation that the Fed will raise rates for the first time this year. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. Wage growth climbed 2.6% compared to February 2016, while the participation rate edged up to 63.0%, up from 62.9%. These solid job numbers have also provided President Trump with a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won’t mind giving him some additional breathing room, with the economy performing so well.

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