Sterling weakened against both the USD and Euro in yesterday’s trading, most likely due to a clouded jobs report and a dovish set of minutes from the MPC.
The number of unemployed people in the UK fell from 7.9% to 7.7% in the last quarter, and the number of unemployed 16 to 24 year olds, titled the ‘lost generation’, also dropped by 35,000. However, the picture was clouded by a rise in the number of individuals claiming job seekers allowance, which is often seen as a leading indicator for unemployment. The number of vacancies also fell by 30,000 in the period from February to April, a drop which was brought on almost entirely by the public sector.
The MPC minutes released yesterday showed an unchanged 6-3 majority who see no need for an increase in UK interest rates, but two of the hawks, Spencer Dale and Martin Weale, said that their decisions was finely balanced. The reason for keeping rates on hold was put down to weak consumer confidence, with any rate rise “leading to an exaggerated impact” on spending and businesses.
The Nationwide consumer confidence index showed support for the MPC’s belief, dropping back to just 4 points above its record low seen in February. People’s unwillingness to spend money showed the biggest drop in April, with the index dropping back 5 points. However, this drop is not expected to be seen in today’s release of UK sales data, which is likely to be pushed up because of the late timing of Easter, the Royal wedding and the warmest April for 100 years.
The April FOMC meeting continued to support an accommodative policy stance, with, only a few of the FOMC believing that conditions might warrant a less accommodative stance this year. The US markets are indeed not pricing in a rate hike for at least a year’s time. This has led to USD weakening against the Euro; it is difficult for the markets to ignore the potential interest rate differentials between the two economies, with a July rate hike likely in the Euro zone compared to the FOMC accommodative stance. However, the Greek debt problem has still not been resolved and remains the main near term risk to Euro strength.
Posted in Daily Market News on May 30 2014
The UK CPI Inflation figure, yesterday, came in above market expectations of 4.2% at 4.5%. This led to Sterling strength in the immediate aftermath of the release, this reaction, however, proved to be temporary with Sterling dropping back below the levels seen before the announcement against both the Euro and...VIEW FULL ARTICLE
Posted in Daily Market News on May 18 2011 by alex