Spectacular UK employment data sends sterling soaring up across the board

Tom Tong23/Jan/2014Currency Updates

GBP

Wacky races Wednesday yesterday with sterling racing up significantly against its most traded pairs. The rocket fuel came from the BoE minutes and unemployment data. Sterling soared up half a cent against the euro and dollar, Asian trading saw the pound holding support and London opens with the pound again scuttling up across the board. Yesterday’s peak saw sterling at a 3-week high against the greenback and 1 year high against the euro. The pound continues to roar up against the dollar this morning with massive buying interest.

The BoE minutes didn’t really reveal much in the way of sentiment towards QE, although they did again stress that any drop in interest rates would be a gradual process and would not necessarily stem from the unemployment rate hitting 7%. The unemployment data was very strong. Unemployment has now dropped to 7.1% and we saw the sharpest quarterly drop since 1997. 7.1% brings it a whisker from the rate at which the BoE originally intended to review interest rates. It now seems very likely that a further revision will bring the targeted unemployment level to 6.5% as the drop has been so fast.

Furthermore, average earnings rose 0.9% and the amount of benefits claimants fell 24K to 1.35M this was also the 14th month on the bounce that they have dropped. The overall amount of workers in the economy is now at 30M which is the highest since records began. With all the good news its easy to get over excited but all of this data clearly further supports consistent and sustainable growth for the UK economy.

No data of note out today.

EUR

A quiet day for the euro yesterday. London closed with euro gains against the dollar although we saw fair losses against sterling with the euro dropping off half a cent, falling victim to the strong sterling rally following spectacular unemployment data and agreeable BoE minutes it was on the ropes and dived to a yearly low against the pound. London opens with the euro jumping up against the greenback with expectation of improved euro data today. French manufacturing PMI and services data both saw uplift this morning. Thus a domino effect for wider euro data is logical.

Minor data out of the eurozone yesterday, Spanish trade balance was a disappointment and the deficit has now widened. Spain’s shortfall increased sharply in November as exports shrank at a faster rate than imports. Overall trade for November resulted in a deficit of EUR 1.7bln, which was higher by 25% than in the same month of 2012. Spanish unemployment figures were also below expectations this morning coming in at 26%

Portuguese current account balance came in flat with nothing really worth a mention. Portugal is still struggling and is an increasing cause of concern. The country continues to struggle to produce any signs of growth and is plagued by political infighting.

Over in Paris, Francois Hollande will be pleased with this mornings data although he continues to have a tough time. Controversy over his complicated private life aside he continues to battle with big business. He is aiming to kick start the economy by cutting labor costs, thus delivering a dynamic reform to the economy. French business has the lowest profitability in Europe since firms pay around 60% of net salaries in employment charges. Big business is still raging over his massive tax hikes and fail to take him seriously.

Big data releases out of the eurozone today- manufacturing PMI (January) current account figures (January) and consumer confidence (January).

USD

The dollar slipped against sterling although was steady against the euro and its most traded basket. Investors expect the Fed which meets next Monday and Tuesday to make another $10bln cut to its monthly bond buying program following last months reduction brought its monthly purchases of bonds to $75bln.

The redbook index saw slight gains. However, mortgage applications were down as they have recently become more expensive therefore reducing purchases. Although overall the US property market is almost fully recovered from the lows seen following the recession which in some cases saw land and property prices crash to lows not seen since the Wall Street crash.

Today will be an important day for the dollar with employment data, manufacturing PMI, home sales and the Kansas Fed manufacturing survey set for release. Eyes and ears will be primed towards the employment data with the market widely calling an improvement from the shocking Non-Farm Payroll, which was mostly blamed on shocking weather which left many unable to work.

The FED’s reaction will be key with everybody keen to gauge the FEDs approach to the pace and size of QE pending employment data.

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Written by Tom Tong

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