Tariff delays give the Dollar much needed respite
UK employment data was a mixed bag; the unemployment rate ticked up to 3.9% from 3.8%, but jobless claimants were far less than predicted and the employment gain was much stronger than expected at 115,000, a record high. Headline average earnings growth increased to 3.7% and the previous result was revised up to 3.5% while underlying earnings growth increased to 3.9%; the strongest reading since July 2008. The rising pace of earnings growth will feed into inflationary pressures making justification for monetary easing that much harder for the Bank of England. The Pound clawed back some ground following the releases, although the most would describe the effect as muted.
Sentiment remained unsettled by political fears despite the White House’s John Bolton hinting at a US and UK free-trade deal to be stuck at this month’s G7 Summit. Commons Speaker John Bercow stated that he would block any attempt to suspend parliament. Sterling failed to regain the 1.2100 mark against the Dollar, falling to near 1.2050 while the Euro found support near 1.0810. This morning sees a raft of UK inflation data releases, and the headline consumer inflation figure is forecast to drop modestly.
The US Dollar Index barely moved yesterday following the release of US consumer price index data. The core CPI rose 0.3% in July, bringing the all items index to 1.8% for the last twelve months. The focus of the market remains on the battle being waged between the two major trading partners – the US and China. The latest inflation reading may, though, send the US President and the Twittersphere about the Federal reserve (Fed) not doing enough with rate cuts.
Attention shifted towards China by the end of the day with the releases of heavy-duty data: industrial output, employment and sales. The US Trade Representative announced that tariffs on several products manufactured in China will be delayed until mid-December, giving some financial analysts a much needed chance to breathe sweet oxygen.
Despite the disappointing data release from the Euro yesterday, the currency managed to hold above the 1.12 mark against the Dollar until a surge of strong bearish pressure came into the market in the latter part of the day, as the Dollar capitalized on the latest developments surrounding the delaying of tariffs in the US-China trade dispute. As of writing, the pair is currently trading at 1.1180.
The closely watched ZEW Economic Sentiment Index in Germany slumped -44.1 in August to miss the market expectation of -21.7 by a wide margin. The miss in reading only confirms a significant deterioration in the outlook for the German economy.
Data to watch
09.30 GBP – CPI
GBP – PPI Input