SEVEN YEAR LOW FOR UK UNEMPLOYMENT
Despite mixed data which reported on the UK labour market yesterday, the Pound was able to pick up some much needed momentum after what has been a disappointing few weeks. Whilst there was an unfortunate rise in the claimant count figure for September, better news came when the overall UK unemployment rate showed a decline to 5.4% from 5.5% – this being the lowest it has been for seven years. The headline figure for annual wage growth was slightly weaker than expected, with underlying growth of 2.8%, missing the consensus of 3% and down from a previous of 2.9%.
This data reinforces the opinion that the labour market in the UK is continuing to tighten. However, there are likely to be further doubts inside the walls of the Bank of England (BOE) over whether the pace of earnings growth is strong enough to trigger inflationary pressure.
The renewed confidence in the Pound has resulted in GBP/USD testing a month high, whilst against the Euro, the pair began to test higher. Despite the data being perceived as positive, many traders will feel that the underlying value of Sterling is somewhat unclear; with inflationary pressures mounting and any call for a rate hike seemingly being pushed back, the waters are muddied for now.
The Euro held firm yesterday, particularly against the Dollar and advanced further following a series of disappointing US data releases. This morning though, the pair has retraced from the summit of a seven week high and is trading back in line with what is a key support level.
On the fundamental front, we didn’t have anything significant enough to potentially influence the stance of the European Central Bank on monetary policy, nor significant enough to provide any extended price action. The only piece of data worth noting came in the form of Eurozone Industrial Production for August. The month on month figure released was in-line with expectations at a dismal -0.5%. The figure for the 12 months leading to August disappointed further, showing an annual figure of 0.9% from a previous of 1.7%.
It wasn’t a good day for the Dollar yesterday as losses were recorded versus its most traded counterparts following some less than impressive data releases. The data that hurt the Greenback most came by way of Retail Sales for the month of September. The figure published showed that Retails Sales saw a measly uplift of 0.1% last month and taking the sale of automobiles out of the equation, the declines reached -0.3% for the month.
Could this spring fears that US consumers simply aren’t spending or could it simply signal a tightening of the purse strings ahead of the festive period? Some are suggesting that the negative data significantly undermines the confidence in a possible interest rate hike before the end of the year. Richmond Fed President Lacker stated that he hadn’t changed his hawkish policy tone despite weaker data, but had not come to a final conclusion on October’s decision. The data resulted in the USD being pushed to a seven week low versus the Euro on the New York session. However, overnight those losses have largely been erased as we await more key data today.
Stateside we have another host of releases to look at today with particular attention being paid to the Consumer Price Index figures at 13:30 BST. A softer inflation reading will reinforce expectations of a dovish stance taken by Janet Yellen and Co, whilst a stronger reading is likely to jolt markets and bring the Dollar bulls back into the fold quite quickly.