Great Britain is working
The UK labour market report showed the unemployment rate falling to an 11-year low of 4.9%. The stronger than expected gain for unemployment, along with a smaller than expected increase in the claimant count, helped boost underlying confidence in the UK economy. Sterling strengthened against both the Euro and the Dollar following this strong data.
If this overall confidence holds firm, there will be less of a pressing need for the Bank of England to cut interest rates aggressively. This was reinforced by Monetary Policy Committee (MPC) member Forbes who stated that after the referendum vote there may be a case to adjust monetary policy soon, but the MPC should wait until more hard data is available and the referendum impact is understood. Sterling was above 1.3250 against the Dollar when the market opened this morning.
Today, UK retail sales data is due for June. This will show the impact of Brexit uncertainty, with general consensus expecting a fall back to -0.4%. The data will be released with the UK’s public sector net borrowing.
There was a relatively quiet day for the Eurozone yesterday in anticipation of today’s European Central Bank (ECB) monetary policy decision. There was a modest deterioration in Eurozone consumer confidence – the data for July was at -7.9 compared to the previous -7.2. However, this had very little impact on the single currency. Overall, the Euro was able to find support just below the 1.1000 level against the Dollar.
There are strong expectations that the ECB will keep interest rates on hold at today’s Council meeting. However ECB President Draghi’s post-meeting press conference will be watched closely for any insight into future movements. GBPEUR opened this morning above 1.2000 ahead of the meeting.
With no top tier data released from the States, the Dollar was traded according to market sentiment. There will be a more turbulent day today, however, as the US Department of Labour will release the weekly unemployment claims data. The Philly Fed Manufacturing Index will also be released around lunch time.
Data to Watch: 9.30am GBP Retail Sales MoM, GBP Public Sector Borrowing. 1.30pm EUR ECB Press Conference, USD Philly Fed Manufacturing Index, USD Unemployment Claims. 2pm USD HPI MoM. 3pm USD Existing Home Sales.