Surprising jobs data steadies Sterling
Yesterday kicked off with news that jobless claims hit 529,000 in May, approximately double the forecast and April’s data was revised up to 1.03m from the original figure of 860k. Job vacancies declined at the fastest pace on record and 9m employees were furloughed. Sterling started to slip immediately after the data but firm global risk appetite provided a safety net and ground was reclaimed. By afternoon a Dollar recovery was the main driver and Sterling dipped to lows near 1.2550 on the Dollar while the Euro settled around 1.1160.
Headline consumer inflation (CPI) dropped to 0.5% in May in line with forecasts, down from 0.8% previously and the core rate dropped to 1.2% from 1.4%. The inflation data will maintain expectations of further Bank of England easing, but avoid any direct driver on interest rate moves in the short term. Sterling has moved a little higher to 1.2570 on the Dollar and floats around 1.1142 on the Euro.
US retail sales strengthened up 17.7% for May following a revised 14.7% decline the previous month and well above consensus forecasts of 8.0%. Excluding autos, sales increased 12.4%, after a 14.4% decline previously while the control group posted an 11.0% monthly gain. Sales were boosted by the re-opening of outlets, especially as consumers also received government support cheques.
Industrial production increased 1.4% for May, below expectations of 2.9% while the NAHB housing index rebounded strongly to 58 from 37 previously.
In testimony to Congress, Fed Chair Powell reiterated that interest rates would remain at zero until the economy is on track and that the Fed is fully committed to using its full range of tools to support the economy. Powell downplayed the potential use of the corporate buying programme which triggered a sharp dip in risk appetite, but there was a partial reversal after he stated that there is a reasonable probability that more support measures will be needed from the Fed and Congress. He also stated that bond buying was likely to continue for several years and remained generally cautious over the outlook.
The dollar overall continued to gain net support and the Euro retreated to the 1.1230 area before finding support. The US currency edged lower this morning with the Euro around 1.1275, although narrow ranges prevailed with uncertainty over current driving factors for the US currency contributing to caution.
The Euro’s uptrend against the Dollar remains intact, however, the pair may consolidate as the US currency will likely to attract buyers on resurgent Covid-19 fears.
The currency pair is trading largely unchanged around the 1.1270 as we begin Wednesday’s trading session. With movement being kept largely in a range between 1.14-1.12 in the last five trading days, the range play may force investors to question the validity of the recently established bullish trend.
Apart from broader market sentiment, the common currency may take cues from the Eurozone CPI scheduled for release later this morning.