Sterling Rallies on Strong Jobs Data
The Pound climbed higher against the US Dollar, exchanging at $1.41 for the first time since June 2016, as the Dollar fell to three-year lows. This week’s upbeat data from the UK included a larger than expected budget deficit, higher business optimism and reports of progress being made at Brexit deals, according to the European Parliament. Today’s labour market report was also unexpectedly positive, showing improvement in both employment and wage growth which further lifted Sterling’s value.
The Euro has climbed to its strongest levels against the US Dollar since December 2014, after a report showed Eurozone consumer confidence surpassed expectations in January. Euro’s strength has been fuelled by optimism that the European Central Bank (ECB), will begin tapering its stimulus programme in the near future. Tomorrow, the ECB’s meeting will be scrutinised for clues on the outlook for monetary policy, which could significantly impact the single market currency’s value.
Pound Sterling – UK Markets
The Pound is rising stronger against the US Dollar, with the exchange rate up to $1.41. Sterling is also performing well against the Euro, with the exchange rate set at €1.14.
The Office for National Statistics (ONS), released labour data that was seen as broadly positive, although the number of people claiming jobless benefits in December spiked by 8,600, which was higher than the expected figure of 5,400. This brought the number of those claiming jobless benefits up to the highest rate since February 2015. November wage growth, excluding bonuses, climbed to 2.4%, which is an improvement on the previous 2.3%, although it doesn’t keep pace with the 3% rate of inflation.
In better news, the employment rate rose by 102,000 in the three months to November, bringing the total of UK workers to a record 32.2million. The UK’s unemployment rate remains at a 40 year low of 4.3%. ONS statistician, David Freeman commented that the employment figures indicate that “demand for workers clearly remained strong.”
Yesterday, the Confederation of British Industry (CBI), released their January Industrial Trends Survey which showed that manufacturing output grew in the three months to January. The report reveals that 27% of British manufacturers are more optimistic about their general business situation than they were 3 months ago. While manufacturers are upbeat about orders and exports they are concerned about the continued impact the depreciating Pound had on firms’ costs and margins. Also, the number of firms citing concerns about a lack of skilled labour reducing future output was at its highest level in over 40 years.
Sainsbury’s announced plans to cut “thousands” of store manager jobs in its over 1,400 supermarket and convenience stores across the UK yesterday. Sainsbury’s is trying to cut costs in order to save £500m over the next three years. Sainsbury’s decision to downsize came a day after Tesco said it will shed 1,700 shop floor roles, in an effort to make £1.5bn in cost savings by 2020. Tesco’s intention to introduce an “more efficient and effective structure,” includes offering employees some of the fewer, but higher paying new management roles in each store.
US Dollar – US Markets
The US Dollar slipped against the Euro, with the exchange rate set at €0.81. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, has fallen below 90 for the first time since December 2014, coming in today at 89.70.
Jerome Powell, President Trump’s chosen candidate for the next chair of the US Federal Reserve (Fed) has been approved by both Democrat and Republican US Senators. Powell, who is seen as a supporter of low interest rates, will replace the current Fed chair, Janet Yellen, when her term expires in February. Powell is broadly expected to maintain Yellen’s policies that contributed to the US having a robust annual growth rate of 3.2% in the third quarter of 2017. With 3.1% growth in the previous quarter, the US had its strongest six months of economic activity since 2014.
Speaking at the World Economic Forum in Davos this morning, US treasury secretary Steven Mnuchin defended President Trump’s “America First Agenda”, saying it doesn’t clash with the administration declaring that “America is open for business.” Mnuchin also welcomed the weak Dollar, which had the immediate effect of bringing the US currency to a new three-year low. Commerce secretary Wilber Ross argued that the US wasn’t starting a trade war, but rather, one was already underway, saying: “The difference is that the US troops are now coming to the ramparts.”
The US Richmond fed manufacturing Index released yesterday shows that manufacturing firms are reporting slower growth in January. The index came in at 14, missing expectation that it would hit 19 after a previous figure of 20. This slowdown might be reflected later today in a lower US Markit manufacturing Purchasing Managers Index, as the reading is expected to come in slightly weaker than it had been in December.
Euro – European Markets
The Euro is strong against the US Dollar, gaining 29% in value today, with the exchange rate set at $1.23.
January Markit Manufacturing Purchasing Managers Indices (PMIs) for France, Germany and the Eurozone were uniformly lower than had been expected, today. Likewise, each of the three Services PMIs were much higher than anticipated, indicating strong growth in this sector. This Services expansion was responsible for the three positive Composite PMIs released by Markit Economics for France, Germany and the Eurozone.
Yesterday, January’s European Consumer Confidence reading shattered expectation that it would rise slightly to 0.6 after a December reading of 0.5. The robust figure of 1.3 released by the European Commission indicates economic expansion is moving at a faster pace than had been expected.
At the World Economic Forum in Davos, Guggenheim Partners chief investment officer Scott Minerd expressed concern about “disturbingly high” optimism about global growth. Describing Davos as a “valuable contra-indicator” for investors, Minerd said he is “troubled by the euphoria undergirding the gathering”, adding, “I have seen bull market tsunamis before. They can be both rewarding and destructive.”
Other Currencies – Highlights
Sterling is holding steady against the Australian Dollar, exchanging at 1.74 AUD. The latest Westpac-MI Leading Index, released today indicates that economic growth will accelerate sharply in the first half of 2018, providing a temporary boost that is unlikely to encourage the Reserve Bank of Australia to raise interest rates.
The Pound is also stable against the New Zealand Dollar, trading at 1.90 NZD. New Zealand in one of the 11 countries that expect to sign the revised Trans Pacific Trade Pact (TPP) which is scheduled on 8 March in Chile. The breakthrough in the stalled deal comes a year after President Donald Trump withdrew the US from the TPP.
The Pound remains firm against the Swiss Franc, exchanging at 1.34CHF. The Swiss National Bank Chairman Thomas Jordan said this week that the Swiss Franc is still highly valued after losing nearly 9% against the Euro last year. “Since the summer of 2017, the significant overvaluation has been reined in a bit, “Jordan said.