Unemployment data a worry for Sterling
The markets were thrown another curve-ball when UK labour-market headline data printed stronger than expected, but the underlying data caused significant concern with declines in payrolls and hours for June. The announcements of further job losses fed concerns that underlying unemployment would continue to increase and trigger a sharp rise in headline unemployment later in 2020. There were also expectations that the Bank of England would have to ease monetary policy further. The Pound initially moved lower after the data but gradually regained some ground later in the day, supported by expectations of very accommodative monetary policies from the Federal Reserve and ECB.
Sterling edged above 1.2600 on the Dollar, but equity markets traded lower and unease over brittle risk conditions limited support.We open this morning near 1.2550 on the Dollar and 1.1030 against the Euro.
Boris Johnson will unveil new plans to ease the coronavirus lockdown at a Downing Street press conference at 11 a.m. He is also expected to confirm plans to increase testing capacity to half a million a day by the end of October, and that it’ll be 9 months before normal life can continue.
Headline US retail sales increased by 7.5% for June compared with consensus forecasts of a 5.0% increase and followed an upwardly-revised 18.2% increase for May. Underlying sales increased 7.3% on the month and the control group registered a 5.6% advance after a 10.1% gain the previous month.
The Philadelphia Federal Reserve (Fed) manufacturing index retreated slightly to 24.1 for July from 27.5 previously but was above consensus forecasts of 20.0. There was a stronger increase in new orders, although only a small increase in unfilled orders while employment increased. Initial jobless claims declined slightly to 1.30mn for the latest week from 1.31mn previously, although slightly above consensus forecasts of 1.25mn.
Continuing claims declined to 17.3mn with overall claims, including Federal benefits, declining to 32.0mn from 32.4mn previously. The data overall was stronger than expected, but markets remained uneasy over the risk that recovery would stall given the fresh increase in coronavirus cases, especially as transportation indices indicated very little recovery and mobility indices have lost ground.
The ECB kept interest rates unchanged at their latest policy meeting yesterday with the rate remaining at 0.0%. President Lagarde stated that the economy had shown signs of a significant uneven recovery while the risks were still tilted to the downside and uncertainty over the rebound also remained high. Looking at PEPP emergency bond purchases, Lagarde expected that the full envelope of 1350bn Euros would be used unless there are significant upside surprises to the baseline scenario.
Overall, the Euro closed positively around 1.1430 before being pushed back down during the US session. Market will continue to watch the Euro with directional bias coming from the EU summit continuing today and Saturday.
As of writing, the Euro trades around the 1.1385 against its US counterpart.