London-based jobs boom
Bank of England (BoE) external Monetary Policy Committee member (MPC) Saunders stated on Friday that fears over a sharp decline in consumer spending had not materialised and he was relatively optimistic surrounding the outlook with a further increase in employment. The currency impact was limited as Saunders had voted for a rate hike at the last meeting.
The BoE is watching pay closely as it gauges whether to raise rates. It had expected wages to start rising more quickly as employment picked up but this has failed to materialize despite a record-high number of people in work.
The BoE had warned earlier this month that sluggish productivity growth, along with added uncertainty over the economic outlook during the Brexit process, may be preventing Britons from pushing for higher pay packets.
Overall, the lack of convincing reasons to buy Sterling meant GBPEUR pushed to fresh 10-month lows of 1.0989.
This morning, IHS Markit data revealed the London Jobs market is creating new positions at the fastest rate since April 2016. Further jobs data is expected later today with the release of the Chartered Institute of Personnel and Development survey. UK Consumer Price Index (inflation), is due tomorrow.
US consumer prices rose 0.1% in July, below consensus forecasts of a 0.2% gain, with the year-on-year increase at 1.7% from 1.6% previously. This was the fourth successive month that the headline rate came in below expectations with no increase in energy prices on the month despite higher oil prices. Car prices also declined, although there was a steady increase in services-sector prices. The data maintained doubts whether there would be further short-term Fed tightening which triggered fresh selling pressure on the Dollar.
Dallas Fed President Kaplan stated that he wanted to see more evidence on progress towards the 2% inflation goal before raising interest rates again. Minneapolis head Kashkari also maintained his dovish stance with comments that the labour market has greater slack than thought and that inflation hasn’t increased with a tightening labour market. There was a further shift in Fed Funds futures with the potential for a further increase in rates declining to near 35%. The latest CFTC data recorded the largest net short Dollar position since January 2013.
On the Euro front, the lack of data last week left it exposed against its peers. Dollar strength from US Job Openings caused Euro selling at the start of the week which was reversed later as geopolitical tensions with North Korea rose. Against the Pound, a shortage of data from the British economy caused fairly neutral movements for the Euro.
This week, eyes turn to the annual European Union Gross Domestic Product (GDP) figures on Wednesday. The Eurozone economy continues to be firm, and speculation is optimistic over near-term monetary policy changes. The GDP result is forecast at 2.1% y/y but, as always, this number could vary significantly and take its toll on investor sentiment.
Further, Thursday we see Consumer Price Index (CPI) and European Central Bank (ECB) Monetary Policy Accounts which will also have a large impact on Euro sentiment. CPI y/y data is expected to remain constant at 1.3%.
Data To Watch:
9:00am EUR Industrial Production s.a. (MoM) (Jun), Industrial Production w.d.a. (YoY) (Jun)