GBP/USD is unchanged in the Tuesday session. In North American trade, GBP/USD is trading at 1.2940. On the release front, British BRC Retail Sales Monitor impressed with a gain of 5.6 percent. Over in the US, there was another strong employment report, as JOLTS Jobs Openings remained unchanged at 5.74 million, above the estimate of 5.67 million.
There was good news on the consumer spending front in the UK, as retail sales in BRC stores jumped 5.6% compared to a year ago. The sharp increase underscores that consumer spending remains resilient, but there are growing concerns that this trend will change in 2017. Analysts point to two major areas of concern. First, the weak British pound means that consumer purchasing power has decreased, since imported goods have become more expensive. Second, the triggering of Article 50 and the upcoming negotiations with the EU over Brexit is causing uncertainty about the economy and jobs, and this means that consumers will be holding back on buying major items. If consumer spending, a key driver of economic growth, weakens, the pound could follow suit and lose ground.
With the US posting strong employment numbers in April, it’s a good bet that the Federal Reserve will raise rates at the June policy meeting. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. Wage growth remained weak at 0.3%, but still matched the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed could raise rates three more times in 2017. As things stand now, two more moves is the likely scenario. The strong job numbers have cemented a rate hike in June, as the odds of a June hike continue to rise and are currently at 87%, according to the CME Group.
