GBP/USD Daily Fundamental Analysis for May 5, 2011

Markets will approach the BoE’s rate decision to see the bank’s action in the month of May to see whether they will continue on holding both interest rate and APF unchanged at 0.50% and 200 billion pounds or they will surprise markets. Expectations refer to no change in BoE monetary policy today, where the release of downbeat data eased pressure on policy makers to raise interest rate.

On Wednesday, grim UK reports showed that construction expansion slowed to 53.3 in April from 56.4 a month earlier and house prices dropped 0.2% in April from the prior 0.5% advance. The abysmal reports followed the fall in manufacturing to seven-month low ahead of the release of services figures due today at 08:30 GMT, where it will be followed by the rate decision at 11:00 GMT.

Despite the drop in housing and construction data in the UK yesterday, the dollar showed more vulnerability as it pushed the pair up after the release of US ADP employment change which showed that the private sector added 179,000 jobs in April from 201,000 in March.

While the Fed had kept monetary policy loose, the BoE is predicted to tighten monetary policy in June, which may help the pound to strenghen after dropping at the beginning of the current week.

Following the BoE rate decision, US Initial jobless claims for the week ending April 30, due at 12:30 GMT, is set to show a rise in the number of people seeking jobless benefits to 410,000 compared with 429,000 a week before, according to median projections. The news may have some effect on the pair as it may provide additional evidence on the US labor market ahead of the release of jobs report on Friday.

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