UK data looks positive
Yesterday saw evidence that the UK economic recovery is beginning to feed through into the labour market. Claimant count unemployment fell for the fifth month in a row and, even though the 20,800 June decline was the smallest of any month this year, the claimant count is now at its lowest in more than a year. In addition, there was a 34,000 drop in the wider ILO measure in the three months to May. This is the first decline on this measure since January, the biggest fall of the economic recovery and resulted in a drop in the unemployment rate to 7.8% from 7.9% in the three months to April. Meanwhile, employment increased by 160,000 in the three months to May, the largest increase since the three months to August 2006. However, it is not all good news. The rise in employment was largely driven by part-time workers, with only a 12,000 increase in full time employment. This recession has been characterised by the ability of modern firms to adjust working hours and make use of flexible working practices in order to avoid laying people off outright where possible. Though this resulted in less unemployment than feared per se, it did coin the new phrase in the rise of ‘underemployment’, i.e. people in work but not doing as many hours as they would like. There are also real concerns about the sustainability of the improvement in the labour market. While unemployment may continue to fall in the near term, the private sector may well not be able to compensate for the expected level of public sector cutbacks. Despite this, Sterling rose to a two month high against the Dollar itself, currently settling above 1.53.
Despite a steady trickle of releases, Sterling currency pairs were largely rangebound yesterday, making gains of around a cent against both the Dollar and the Euro. The Dollar was the focus of the day, holding close to a two-month low on a trade weighted basis as rising investor confidence after strong earnings reduced safe haven demand. Strong corporate earnings figures from companies across the globe appear to have balanced out weak US economic data, reducing haven demand for the Dollar. Minutes from the Fed’s June FOMC meeting revealed that members had become more concerned about deflation, also revising downwards their growth forecasts, Nothing indicates that this will lead them to consider further easing strategies as yet. Largely, the meeting was neither hawkish enough to reverse the negative sentiment towards the dollar, nor dovish enough to heighten expectations for a resumption of credit easing, and the impact of the statement was muted. The Euro has consolidated gains against the Dollar, briefly touching 1.28 this morning. The single currency benefitted from the rise in risk appetite, and a successful bond issuance by three Eurozone countries. Despite a slight dip yesterday after unexpectedly weak US retail sales hurt risk further, and amidst talk of a possible downgrade of Spanish debt, the Euro has forged a two month high against the Dollar.
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