Pound Continues To Move Lower

 | May 23, 2014 07:44AM ET

The British pound has lost more ground on Friday, as GBP/USD trades in the low-1.68 range in the European session. On Thursday, British GDP matched the forecast, while Business Investment posted its sharpest gain since Q3 of 2012. In the US, key releases disappointed. Unemployment Claims missed expectations, as the indicator climbed to a three-week high. Existing Home Sales improved in April, but fell short of the estimate. On Friday, the US releases New Home Sales, with the markets expecting a strong upsurge. There are no UK releases on Friday.

US housing and employment releases disappointed on Thursday. Unemployment Claims has looked sharp over the past two releases, but the short streak came to an end, as the key employment indicator climbed to 326 thousand, up from 297 thousand a week earlier. This missed the estimate of 312 thousand. With future QE tapers by the Federal Reserve contingent on solid economic data, key employment releases such as Unemployment Claims will continue to be closely scrutinized by the markets. Thursday's other major release, Existing Housing Sales, improved in April, rising to 4.65 million. However, this was short of the estimate, which stood at 4.71M. We'll get a look at New Home Sales on Friday, with the markets looking for the indicator to rise sharply in April.

British Second Estimate GDP is often a market-mover, but this time the pound failed to take advantage of another strong reading. The indicator posted a healthy gain of 0.8% in Q1, matching the forecast and keeping in line with the past three readings. The GDP release is another indication that the British economy is recovering at a good clip, so speculation about a rate hike from the BOE will continue to pre-occupy the markets.

The Federal Reserve minutes were released on Wednesday, and there was no dramatic response from the markets. In the minutes, policymakers discussed an exit strategy from its QE stimulus program, which is set to terminate at the end of 2014. This will likely mean an increase in interest rates, but the minutes didn't provide a timetable as to when rates might go up, and by how much. Low inflation levels means there is less pressure on the Fed to raise rates next year, but the economic conditions could change in the meantime. The Federal Reserve remains comfortable with its accommodative stance, and will want to see stronger growth and employment numbers before making changes to monetary policy, such as raising rates.

S3 S2 S1 R1 R2 R3
1.6549 1.6705 1.6765 1.6896 1.7000 1.7210