Sterling holds firm after budget reaction
The Pound was mostly range bound this week, straddling the line just below some key levels of resistance as markets reacted to Chancellor Rishi Sunak’s 2021 Budget. While GBP investors welcomed Sunak’s pledge to do ‘whatever it takes’ to support the UK’s economic recovery, his plans for a significant rise in corporation taxes proved a point of concern.
Turning to next week, the publication of the UK’s latest monthly GDP reading will be watched closely by GBP investors as it will reveal just how big a hit the UK economy took from the latest lockdown.
The Pound opens at 1.1600 against the Euro and around the 1.3850 mark against the Dollar.
US initial jobless claims increased slightly to 745,000 in the latest week from a revised 736,000 the previous week, although this was slightly below consensus forecasts. Continuing claims declined to 4.30mn from 4.42mn and marginally below expectations. There was a sharp decline in the number of people receiving pandemic emergency relief with the number of people claiming under all programmes declining to near 18.0mn from 19.0mn previously, although the year-ago figure was 2.2mn. Challenger data also recorded a decline in monthly lay-offs to 34,500 from 79,600 previously with a 39% annual decline.
The claims data helped underpin expectations surrounding today’s employment data with markets expecting a payrolls increase of around 200,000.
The dollar was held in relatively narrow ranges amid caution ahead of comments from Federal Reserve (Fed) Chair Powell. Powell stated that there was a lot of ground to cover to reach maximum employment. He also stated that a decline in the unemployment rate to 4% would not represent full employment and it was highly unlikely that the target would be reached this year. Powell also commented that the Fed would be concerned by disorderly conditions in financial markets and a tightening of conditions in the bond market. The Fed Chair, however, did not issue a stronger warning against higher yields and commodity currencies retreated sharply as equities moved lower.
Thursday was not a good day for the Euro with the single currency coming under pressure amid a pick up in US dollar fortunes on comments made by Fed Chair Jerome Powell. Pushing the Euro to potential 3-month lows against the US currency to around the 1.1925 mark.
With German Retail Sales data missing its expected number, we could continue seeing a sell off in the Euro as we come to the weeks close.
As of writing, the single currency trades around the 1.1930 level against the US Dollar.
Data to watch
08:30 – USD – Average Hourly Earnings
08:30 – USD – Non-Farm Employment Change
08:30 – USD – Unemployment Rate