Unemployment figures released this morning showed that the UK ILO Unemployment Rate rose marginally to 7.8% from 7.7%, whilst the UK Claimant Count Change improved to -12.5K for the third month in a row. However, this slight glimmer of hope that the UK economy may actually be starting to show signs of recovery, offered little help to the Pound this morning which has taken somewhat of a battering following the release of the BoE minutes.
Sterling plummeted at 9:30 GMT against both the Euro and the Dollar, following the release of BoE minutes which confirmed that three of the nine MPC members favoured an increase in stimulus at this month’s policy meeting. Paul Fisher, David Miles and BoE Governor, Sir Mervyn King were the members who were voted down, though this does suggests that the committee is potentially warming to the idea of additional stimulus in order to help revive the economy. This is something we may well see in the coming months which, whilst potentially helping the economy, certainly wouldn’t do the Pound any favours.
GBP/EUR dropped over a cent in the space of twenty minutes after the BoE minutes were released, before levelling out to its current trading level of 1.1430. Cable faired similarly, as the pair dropped from 1.5439 to a daily low of 1.5294 in less than an hour, and is currently trading at 1.5308. The GBP/EUR charts aren’t looking too favourable for the Pound either and the general outlook is rather bearish for Sterling at the moment. However, the Euro Zone has by no means ‘recovered’ and with elections in Italy coming up and rumblings from a number of European leaders that the Euro is far too high at present (potential for EU interest rate cuts), it would appear that there remains significant scope for GBP/EUR to recover at some point, the question is when.
There was little movement in the markets yesterday afternoon following the mixed employment data that came out of the US. That was until the FOMC dropped a bombshell yesterday evening. At 19:00 GMT yesterday the Federal Reserve released their FOMC minutes which suggested there could be an earlier than expected end to the current quantitative easing program. The Dollar strengthened right across the board following the release and both the Euro and Pound pared gains they had made earlier in the week against the Greenback following the fiscal cliff deal.
The announcement slightly panicked equity markets as concerns grew over potential interest rate increases and whether the US economy is actually capable of continuing its recovery without the steroid like effect that the QE program has had. However the comments represent a vote of confidence in the US economy by the Fed and the potential decrease in money supply and rise in interest rates are clearly bullish for the dollar. This was evidenced by the Greenbacks rise against the majority of its counterparts following the FOMC minutes release.
Earlier this morning we saw the release of UK economic data that showed the Markit Services PMI for last month fell to 48.9 and Net Lending to Individuals has dropped to £-0.1B. This caused a momentary spike lower in GBP/EUR as the Pound dropped off 20pips before recovering slightly, however the pair have continued to fall since and is currently trading at 1.2315.
Today is also Non-Farm Friday! We all know what this means – there could once again be some potentially market moving data coming out of the US. At 13:30 GMT the US Nonfarm Payrolls and Unemployment Rate will be released and both could trigger further movement in the Dollar. Cable is currently trading at a key price level having fallen through several areas of support this morning, before breaking beneath a six month upward trend line, as can be seen in the chart below. The next key level of support is at 1.6010 and should this price level be tested, and give way, this would be a strong indication that the rate will continue to drop below 1.60.
Yesterday Wednesday 15th saw Greece’s troubles resurface. With Greece facing a deepening recession, the Greek Prime Minister is set to meet with his French, German and Luxemburg counterparts next week to persuade Eurozone leaders to extend the period of austerity from two to four years, essentially planning to reduce the Greek budget deficit by 1.5% of GDP annually compared to the previous agreement of 2.5%. Due to the slower pace of deficit reduction it is believed an additional £20bn of funding would be required to support Greece.
In the UK, yesterday’s jobs figures continued to defy the recession with unemployment down to 8% and the claimant count dropping by 5,900 in July. Minutes released by the Bank of England also confirmed that the Monetary Policy Committee was unanimous in its decision to leave the bank rate unchanged at 0.5% and to maintain its Quantitative Easing Asset Purchase Programme at its current level of £375bn. Unlike in previous meetings, the bank did not hint towards a bias of further rate cuts giving Sterling a further boost. It is expected that the Bank will gauge the impact of the new Funding for Lending Scheme and the completion of its current £50bn extension of QE in November before it makes a decision on more monetary easing. Today, UK retail sales also beat market expectations growing by 2.8% year on year.
The better than expected news from the UK, coupled with the Eurozone’s on-going troubles has pushed GBPEUR higher towards 1.28, currently trading at 1.2793 (EURGBP 0.7817).
Elsewhere the Pound trades between 1.56-1.57 against the US Dollar and the Euro trades at 1.23-1.24 against the US Dollar on the interbank market.
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The Pound has fallen this morning following the release of Bank of England Minutes and UK employment data. The Pound now trades back below 1.14 against the Euro and below 1.64 against the US Dollar.
The Bank of England Minutes revealed that all nine members of the Monetary Policy Committee (MPC) voted to keep interest rates unchanged at 0.5%, previously two members Martin Weale and Spencer Dale had called for a 0.25% rate hike. Adam Posen continued to be the only member who voted for an expansion of the Bank’s Asset Purchase Programme known as Quantitative Easing. Whilst Quantitative Easing remains at £200bn, some members of the MPC did consider the case for more Quantitative Easing. This softening in the Bank of England’s stance has weighed on Sterling.
Whilst data from the Office for National Statistics showed an increase in the claimant count and an increase in the UK unemployment rate from 7.7% to 7.9% further undermining confidence in the UK economy and Sterling.