GBP/USD Daily Fundamental Analysis for May 6, 2011

Today, with the release of some inflation data from the United Kingdom as detailed PPI data are due at 08:30 GMT the UK ends its data release this week. However, more concentration will be on US data as the awaited non-farm payrolls report will be out at 12:30 GMT. Analysts expect that the change in non farm payrolls to reach 180,000 from the prior 216,000 while unemployment will linger at 8.8%, where a drop in employment will be another shock to the dollar after the retreat in first quarter growth and pledge from Bernanke to keep monetary policy loose.

Yet, the situation is not much better in the UK as the abysmal data released this week raised concerns and nearly offset the progress seen in first quarter GDP figures. Manufacturing, services and construction slipped in April, raising the possibility that the British economy may suffer in the second quarter.

Yesterday, the BoE left both interest rate and APF quantity unchanged in May, where the rate decision had slight impact on the market as it was already expected. Still, the BoE is holding its policy but expectations refer that there will be interest rate hike in the coming months to absorb inflationary pressures that is predicted to send inflation rate to 5% over the coming few months, as expected by the BoE.

Thus, the outlook is to the upside as long as the BoE is holding on monetary policy and the Fed is continuing the bond-purchase program that will end in June.

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