Employment plummets, Sterling shrugs
Sterling had a cautious start to the week, unsurprising in light of UK data releases this week and resumption of trade negotiations. Sentiment remained fragile but the Pound drew some support from the risk appetite and gained on the dollar with a test of the 1.3100 area while the Euro retreated to around 1.1135 until the Sterling buying faded. The Bank of England’s MPC committee member Dave Ramsden commented that there could be further quantitative easing if the economy weakens again.
The British Retail Consortium data recorded a sales increase of 4.3% in the year to July compared to 10.9% previously and Barclaycard reported a 2.6% decline in overall consumer spending in the year to July. Headline UK unemployment has remained at 3.9% against expectations of a rise to 4.2% but UK jobless claims increased by over 94,000 last month. A total of 730,000 have dropped off since March while the number of hours worked hit a record low, although vacancies increased slightly. The jobs data will maintain unease over the underlying jobs-market but the Sterling reaction was muted with only slight losses; now trading near 1.3070 on the dollar and 1.1130 on the Euro.
The dollar strengthened into Monday although overall momentum was lacking and hence the US currency edged back during yesterday’s afternoon as markets continued to monitor US-China tensions during the day.
There were hopes that US talks on the fiscal stimulus package would resume which helped underpin risk appetite, although equities were held in relatively tight ranges. Meanwhile, President Trump’s executive order to replace some unemployment benefits provided a limited lift to confidence amid hopes that downward pressure on spending would be cushioned, although California stated that the state would not be able to pay their contribution.
The White House stated that it was deeply troubled over the arrest of pro-democracy advocate Lai in Hong Kong while President Trump played down the importance of the trade deal with China with markets wary over the risk of a further escalation in tensions.
The US employment trends index strengthened to 50.9 for July from 49.5 the previous month, although this compares with a figure of 109.0 for February. The JOLTS data recorded an increase in job openings to 5.89mn at the end of June from 5.37mn previously, although there was a decline in the number hires while separations increased on the month. Underlying caution over labour-market trends persisted, but the dollar attempted to correct higher.
The Euro-zone Sentix investor confidence index strengthened to -13.4 for August from -18.2 previously and above consensus forecasts of -15.1. Market conditions were still relatively subdued as is often the case on Monday trading following the US employment report with overall trading volumes also limited on seasonal grounds.
The Euro dipped below the 1.1750 ahead of the US session before regaining ground as the Dollar struggled to maintain any traction. Even with the recovery there was still selling pressure around the 1.1800 key psychological level which in turn pushed the common currency back down to daily lows around the 1.1750 mark. As of writing the Euro currently trades around the 1.1730 against its Dollar.
Data to watch
06:00 – GBP – Claimant Count Change