Focus on BoE MPC minutes, unemployment data, FOMC

Wednesday will see some market moving events for the UK, with the monthly MPC minutes from the BoE due to be published followed by the monthly unemployment data. The Bank of England is expected to keep its monetary policy unchanged with key interest rates likely to remain steady at 0.5% while the monthly asset purchase program is also expected to stay unchanged. A key point to watch out for during today’s BoE minutes would be ‘inflation’. Data released yesterday by the ONS showed inflation dropping to 2.1%, closer to the Central bank’s target of 2%. However in the past (November Minutes), Carney and other MPC members have repeatedly mentioned that inflation is likely to spike towards the Q4 of 2013 and in 2014 with upward pressures coming in from engergy and gas price hikes. They previously estimated inflation to spike towards 2.5% so it would be interesting to watch BoE’s commentary on inflation.

With a rate hike ruled out until 2015 and with the unemployment rate still hovering at 7.6% against the BoE’s initial target of 7%, today’s monetary policy minutes are likely to be a non-event.

Monthly Unemployment Data

The robust PMI data during the past month is a likely contributor for analysts expectations that the claimant count change is likely to ease by -35k. While growth has been consistently beating market expectations especially in the construction and manufacturing sectors, the services PMI has been relatively weak in comparison, which could possibly put a dent to the monthly claimant count change. However, the services PMI did post an expansion thus increasing the likelihood of either the actual reading meeting market expectations or coming out better than expected. The unemployment rate is expected to remain steady at 7.6%. During the third quarter of the year, the unemployment rate eased from 7.8% to 7.7% and it is likely that during Q4 of 2013, unemployment rate could well remain stagnant at 7.6%.

FOMC’s Taper Expectations

While the above two events are likely to bring some volatility across the Pound Sterling, the US session will see the key monthly FOMC minutes later in the day. With markets eager to know about the Fed’s policy of taper any moves during the London session is likely to be overshadowed by the FOMC. If the FOMC decides to put off tapering for next year, the GBPUSD is quite likely to push higher. What’s important to note during the FOMC is the wording the Fed will use. During the previous month’s meeting, Fed officials continued to put the ‘taper’ talk on the table stopping short of giving a definite time line.

GBPUSD started the day on a positive note currently trading 0.15% higher after closing at 1.62185 yesterday. In our weekly technical analysis for GBP we noted that while the long term trend for GBPUSD remains bullish, we expect to see a correction coming in place. Price already reached out first target of 1.623 with the next level coming in at 1.616. For most of the other GBP pairs, the bullish trend continues with the exception of GBPCHF.

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