Sterling dips as UK unemployment rises for first time in two years

Enrique Díaz-Álvarez16/Jul/2015Currency Updates


Sterling dipped marginally against the US Dollar yesterday, down by 0.2% after slightly underwhelming unemployment figures.

There was some unexpectedly disappointing data all round in the UK economy yesterday. Unemployment in Britain rose last month for the first time in two years according to the Office for National Statistics. The unemployment rate edged up from 5.5% to 5.6% in the three months to May, after the number of people in employment fell by 67,000. Those individuals in the UK claiming unemployment benefits also rose by 7,000, the first time the measure has increased since as far back as October 2012. However, the report was not all bad news for the British economy. Despite slightly undershooting expectations, earnings continued its march upwards in May. Wage growth, excluding bonuses, increased from 2.7% to 2.8%, its highest reading in more than six years. Including bonuses the measure also increased sharply from 2.7% to 3.2%.

This provides further weight to our view that the UK economy is performing strongly enough to justify a Bank of England interest rate increase in the first quarter of next year. All eyes will now be on the August monetary policy minutes, with the vote on interest rates forecast to be split rather than unanimous for the first time since January.

A muted day in the UK economy today, with the only economic release of note that of the Conference Board’s leading economic indicator at 2.30pm. Attention will therefore instead turn to external announcements from the ECB and Fed Chair Janet Yellen.


The Euro fell by 0.45% versus Greenback following strong data in the US and more uncertainty in Greece.

A lack of data in the Eurozone on Wednesday meant much of the focus was on events abroad and Greek Prime Minister Alexis Tsipras as he battled to win lawmakers approval for the bailout deal to keep Greece in the Eurozone. The deal requires the country to implement unpopular measures, including raising taxes and increasing the retirement age. At the time of writing, the vote is expected to pass, however, only with the help of the opposition, given the revolt from some hardliners in the ruling left-wing Syriza party. More than half of the members of Syriza’s central committee condemned the bailout agreement.

Thursday looks set to be a busy day in the Eurozone economy. The latest inflation and trade data at 10am will be followed by the European Central Bank’s monetary policy statement and accompanying press conference from Mario Draghi just after midday.


Strong economic data in the US economy yesterday afternoon sent the US Dollar surging against its major peers, with the US Dollar index 0.6% higher for the day.

There was impressive data across the board on Wednesday. Industrial production rose in June, increasing by a seasonally adjusted 0.3% from May, despite manufacturing output remaining flat for the second straight month. Capacity utilisation, a measure of industrial slack, also increased by 0.2% to 78.4%, although remained shy of its 40 year average. Similarly, the producer price index jumped month-on-month, up by 0.4%, a sign that inflationary pressures are slowly building as the US economy picks up following its sluggish start to the year.

Speaking at the testimony to the Congress on Wednesday, Janet Yellen stood by her earlier comments that the Federal Reserve still plans on hiking interest rates this year, amid an improving economy and prospects for further improvement in the labour market.

Yellen will be testifying to the Congress again this afternoon, with the Philly Fed manufacturing survey and NAHB housing market index also worth noting.

Rest of the world

The Bank of Canada defied most expectations on Wednesday by cutting its benchmark interest rate again by 25 basis points from 0.75% to 0.5%, having last cut rates in January. The central bank cited an unexpected economic contraction in the first half of the year, which had added to excess capacity and downward pressure on inflation. In a dovish accompanying statement, the bank also slashed its growth forecasts for 2015 and 2016. The Canadian Dollar was sent tumbling, down by 1.3% against the US Dollar to a fresh six year low.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.