GBP at 4 month low versus EUR
The UK unemployment figures are released this morning and it’s expected to remain frustratingly high. The issue is that the UK economy is simply not growing quickly enough to make any great headway into the unemployment number, which currently stands at 7.9%. In recent weeks the Prime Minister, the Chancellor, Vince Cable et al have been telling anyone that would listen that they will ‘tear down the barriers of enterprise’ in order to stimulate growth. These words were echoed by their predecessors, Alistair Darling and Gordon Brown, but if these barriers still need to be ‘torn down’ it tells you that red tape and regulation are still major issues. This time however the stakes are even higher as the government attempts to replace the large public sector losses with employment in the private sector. It remains to be seen whether they can.
In the UK, average weekly earnings are also released today, which the Bank of England’s MPC will be analysing somewhat nervously. If wages levels were to start growing faster this may be the first sign that the high UK inflation levels are causing workers to demand higher salaries. If this was the case and figures are higher than the forecasts of 2.2% growth then expect the calls and screams to grow louder for an interest rate hike.
On the subject of interest rates, our European partners release their euro zone CPI inflation figure at 10 GMT, which if as forecast comes in at 2.4% will lend more weight to the ECB increasing rates next month. ECB President Jean-Claude Trichet has said this is a ‘possibility’ and with the EU summit extinguishing some of the sovereign debt fears this appears even more likely. Since Friday’s EU summit the euro has strengthened against the pound with EUR/GBP currently trading at 0.8680, which is near the four month high.
In other events overnight, the euro returned to the 1.4000 area against the US dollar before pulling back to 1.3968. This rate had dipped lower in the week on the back of safe haven support for the US dollar. However, with the Japanese stock market rallying overnight risk aversion seems to have diminished, for now! The US Fed announced yesterday that rates are to remain at historically low levels, which was widely expected. The very dovish statement released after the rate decision however weighed on the dollar after it stated the current US economy would “warrant exceptionally low levels for an extended period”. The dollar weakened against the pound at is currently trading at 1.6090.