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Record UK employment as the US loses pace

Record UK employment as the US loses pace

GBP 
The UK headline unemployment hit the lowest rate in over 40 years at 4.5% in the three months to May and there was a smaller than expected increase in jobless claims. Average earnings excluding bonuses increased to 2%, which will only add to expectations of a UK rate hike on the horizon. The headline (including bonuses) year-on-year rate was unchanged at 1.8%. Confidence in the labour market helped underpin Sterling demand at lower levels as it recovered to flirt with the 1.1300 level against the Euro, up from eight-month lows of 1.1175.

In an interview, Bank of England MPC member Ian McCafferty stated that he expects to vote again for a rate increase at the August meeting and that the quantitative easing programme should be wound down before interest rates reach around 2%.

Political uncertainty remained an important factor, with EU chief Brexit negotiator Michel Barnier being critical again of the UK negotiating stance.

The latest RICS housing data reported a significant slowdown to 7% for June from 15% previously. Sterling overall held a solid tone at just above 1.2900 against the Dollar from lows near 1.2800 early this morning.

USD

Fed Chair Janet Yellen stated that further interest rate increases were likely to be warranted and that the US economy had strengthened during the second quarter, adding that interest rates would not need to rise much to reach the current low estimates of the neutral rate. There were also remarks that inflation would be monitored closely given uncertainty surrounding overall trends, although she suspected the recent dip in inflation was due to temporary factors.

The Dollar was unable to gain any traction from Yellen’s comments. There were further doubts over whether the Fed would be able to push ahead with medium-term normalisation plans amid expectations that the pace of rate increases would slow and near-term inflation data will be crucial. Yellen expected the process of balance-sheet reduction to start soon.

The US currency lost ground, but the Euro was unable to take advantage as the single currency was subjected to sharp losses on the main crosses, which also pushed the single currency down against the Dollar. Donald Trump Jnr’s headlines are driving safe haven flight out of the Dollar.

EUR

Eurozone industrial production rose 1.3% in May, but there was no significant Euro impact, with the currency undermined to some extent by a dip in German yields in a further correction from sharp gains seen since the middle of June.

The Euro briefly dipped below 1.1400 against the Dollar before settling just above this level and advancing back to near 1.1450 this morning.

Data To Watch:
6:00am Consumer Price Index (YoY) (Jun)
6:45am EUR Consumer Price Index (EU Norm) (MoM) (Jun) 
12:30pm USD Initial Jobless Claims (Jul7), Continuing Jobless Claims (Jun 30), 
2:00pm Fed’s Yellen Testifies, 
5:00pm FOMC Member Brainard Speech, 
6:00pm USD Monthly Budget Statement (Jun)

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