As soon as the representatives of the Bank of England Board ceased to tell terrible stories for the night, the pound immediately found many reasons for growth. At the same time, it cannot be said that the pound made any effort to do this. Of course, the business activity index in the manufacturing sector increased from 54.3 to 54.4, and the business activity index in the construction sector from 52.5 to 53.1. The business activity index in the service sector also increased from 54.0 to 55.1. However, the growth rate of housing prices slowed from 1.9% to 1.8%, according to Halifax.
The largest contribution of the pound's growth was made by the labor market data in the United States. Aside from the published report of the US Department of Labor on Friday, a lot of interesting data came out prior this day. Thus, employment increased by 177 thousand against 189 thousand in the previous month. The total number of applications for unemployment benefits increased by 35 thousand due to growth in the number of initial applications by 3 thousand, and repeated by 32 thousand. As expected, after such data investors were anxiously approaching the Friday report of the Ministry of Labor. The report showed that the unemployment rate rose from 3.8% to 4.0%, but this was due to the fact that the labor force share in the total population increased from 62.7% to 62.9%. Hence, the special concern about the unemployment growth is not worthwhile. Out of agriculture, there were 213,000 new jobs created compared with 244,000 in the previous month. Although the pace of creating new jobs has decreased, they still continue to overlap the growth of workers' hands, resulting the population rate to grow. But the data on the average hourly wage greatly frightened investors, as they remained unchanged, since the increase in inflation, it turns out that salaries are growing more slowly than prices. This is a serious signal to the fact that consumer activity may soon start to decline.
In addition to the labor market data , there were a lot of significant data despite the fact that the week was torn by the celebration of Independence Day. Thus, the business activity index in the manufacturing sector fell from 56.4 to 55.4, while business activity index in the service sector fell from 56.8 to 56.5. As a result, the composite index of business activity decreased from 56.6 to 56.2. Construction costs rose by 0.4%, although they expected growth of 0.5%. Production orders decreased by 0.4% last month, but this time, it was able to increased by the same 0.4%. The total sales of vehicles grew from 16.9 million to 17.5 million. Honestly, if it were not for the labor market data, the dollar will not have such big reasons for the decline.
There is not much data on the UK this week even they will have a serious impact on the market. The main news will be the preliminary GDP estimate for the second quarter, which is expected that economic growth will remain unchanged. If this proves to be true, investors may take it negatively, given recent statements by the Bank of England, as low economic growth rates will not add to the desire of the English Central Bank to raise the refinancing rate. However, the growth rate for industrial production data should accelerate from 1.8% to 2.7%, which can raise investor sentiment, tech as they promise to accelerate economic growth in the near future.
Given that British statistics are expected to be mixed, much attention will be paid to US statistics. Everything starts with the consumer lending data, whose volume could increase from $ 9.3 billion to $ 12.5 billion. Also, data on open vacancies showed its numbers had increase from 6,698 to 6,880 thousand which can raise investor sentiment and reduce fears caused by rising unemployment. The growth in the number of open vacancies inspires hope that people will quickly find a job and the employment situation will quickly return to previous values. Growth rates of producer prices can accelerate from 3.1% to 3.2%, which investors always prefer. But commodity stocks in warehouses of wholesale trade can grow by 0.2%, and this is because they have been growing for the first time in a row. Also, the total volume of applications for unemployment benefits should be reduced by 37,000 due to the decline in the number of initial applications by 1,000 and repeated applications by 36,000. And the main news of the week will be the inflation data, which is expected to accelerate from 2.8% to 2.9%. And although this further widens the gap between the growth rates of average hourly wages and price increases, a confident increase in inflation inspires hope that the Fed will increase the refinancing rate not once but twice at end of the year.
If all forecasts are confirmed, then it is worth waiting for the pound to drop to 1.3150.
* The presented market analysis is informative and does not constitute a guide to the transaction.
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