UK Jobs Data Surprises on the Upside

The UK labour market continues to extend its recent positive performance, as evident by today’s data that showed the number of people claiming unemployment benefits falling more than expected for June. Additionally, the BoE Governor yesterday reiterated his previous stance that a hike in interest rates might happen sooner than expected, although the exact timing would be dependent on economic data in the near term. The focus now shifts to the stance that the BoE might adopt going forward amid promising signs from the economy, especially after yesterday’s inflation data surprised markets on the upside. Across the Atlantic, the Fed Chief also hinted at an early hike in interest rates, if the economy continued to improve.

Pound Sterling – UK Markets

The just out domestic labour market report has indicated that the unemployment rate dropped for the fourth consecutive month to 6.5% for three months to May, while the number of people seeking jobless benefits also declined more than expected for June, thereby indicating that the nation’s labour market is on a recovery path. The positive report has kept the Pound supported against the majors this morning. Additionally, yesterday’s data indicated that UK inflation moved closer to the BoE’s 2% target, thereby reinforcing the recent speculation that the BoE might be the first major central bank to lift interest rates. However, a slower earnings growth, as reflected by today’s jobs report, might prompt the central bank to keep its policy stance intact and scrutinise the amount of slack remaining in the labour market. With no additional macro data today, Sterling investors will keep a tab on a barrage of US economic reports for further direction. Yesterday, the Pound inched higher against the majors following upbeat inflation data. Additionally, the BoE Governor reiterated that interest rates in the UK could rise sooner than market expectations.

US Dollar – US Markets

The US Dollar advanced against the Euro yesterday after the US Fed Chief, while testifying before the Senate Finance Committee, indicated that there is a valid possibility for an earlier hike in interest rates if the labour market recovery accelerates in the coming period. However, she opined that recovery in the nation still remains fragile and needs support in the form of an easy monetary policy. Furthermore, upbeat New York Empire state manufacturing activity report for July reinforced the current market notion that the economy continues to remain on track for revival. Separately, data released earlier indicated that US retail sales rose less than expected for June, citing a surprise drop in automobiles sales, although a continued expansion for the fifth consecutive month boosted optimism for a rebound in economic growth during the second quarter. The greenback is trading higher against the Euro this morning. Going forward today, markets await US industrial and manufacturing output data which are likely to show a continuous improvement for June. Additionally, Janet Yellen’s testimony before Congress will be scrutinised by investors for further clarity following yesterday’s mixed signals.

Euro – European Markets

The Euro nudged lower against the US Dollar in yesterday’s trading session following the Fed Chief’s testimony to the Senate. A disappointing German ZEW sentiment reading highlighted that Europe’s largest economy continues to face headwinds. German investor sentiment declined for July to the lowest level since December 2012, as slow growth and geopolitical risks continued to weigh on the outlook for the German economy. Following yesterday’s decline, the Euro is currently hovering well below the 1.36 mark against the US Dollar, thus returning closer to the lows seen in June. Additionally, the single currency dropped against the Pound yesterday following AN upbeat UK inflation report which heightened speculation that the BoE might raise its benchmark interest rates soon. The Euro is trading lower against its major peers this morning. Going forward today, markets will keep an eye on Euro zone trade data which is expected to show that the surplus widened for May. Additionally, a slew of macro data from the US along with the Fed Chief, Janet Yellen’s testimony before the Congress will keep investors on their toes.

Other Currencies – Highlights

The New Zealand Dollar continued to trade lower against the greenback this morning after data revealed the annual consumer price inflation in the nation rose less than expected for the second quarter. The weak inflation data along with a drop in dairy prices have undermined the central bank’s interest rate hike expectations. However, losses in the Kiwi Dollar were capped following upbeat Chinese GDP numbers for the second quarter released earlier today. Meanwhile, the Kiwi Dollar dropped against the US Dollar yesterday after the US Fed Chief, Janet Yellen, hinted that the central bank might begin raising interest rates sooner than expected, if the US labour market continues to show a steady recovery. With no major domestic macro releases today, markets will keep an eye on news flows emanating from the US for further direction.