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Pound Dips as Dollar Firms

GBP/USD has posted slight losses in the Monday session. In North American trade, the pair is trading at 1.2440. On the release front, it’s a quiet start to the week, with no major US events. The UK will release BRC Retail Sales Monitor. On Tuesday, the US will release JOLTS Job Openings, with the indicator expected to rise to 5.56 million.

The US released key employment numbers on Friday, to mixed reviews. Nonfarm payrolls jumped to 227 thousand, well above the estimate of 170 thousand. However, wage growth disappointed, as Average Hourly Earnings slipped to 0.1%, short of the forecast of 0.3%. There’s no arguing that the US economy is performing well, but there is a sense of uneasiness in the markets as Donald Trump continues to create controversy and dissent both at home and abroad. Trump has picked a fight with Mexico and his travel ban on Moslems from seven countries has created a strong backlash. Moreover, the lack of an economic policy is a major source of concern and the the post-election euphoria which sent the markets higher appears to have dissipated. The Federal Reserve also in the dark about Trump’s plans, and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar.

The Bank of England stood pat last week, making no changes to interest rates or asset-purchases. Interest rates have been pegged at 0.25% since August 2016 and asset purchases at 435 billion since July 2016. The BoE sharply raised its forecast for growth in 2017, from 1.4% to 2.0%. This is testament to the British economy which has performed much better than expected since the Brexit vote back in June. On the inflation front, BoE Governor Carney said that he expected inflation to reach the bank’s 2 percent target later this month. Still, the pound dropped, as Carney stated that the bank remained neutral regarding which way rates would go next. The BoE appears comfortable with low rates, despite stronger inflation due to the a weak pound and higher oil prices. Carney reiterated his concerns about Brexit, saying that Britain’s road out of Europe would be marked by "twists and turns".

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