GBP Surges in Wake of Employment Data, But Why Has it Since Fallen Back? - Wednesday 12th Live Coverage
The British Pound Sterling (Currency:GBP) has powered higher on Wednesday morning after some solid eco-stats out of the UK economy. However, we note that after an initial spike the UK currency has dipped lower again. Why is this? We consider the fundamental questions currently surrounding the Pound Sterling and look forward to tomorrow's big Carney event.
Latest rates: A look at the spot markets as of the latest live update
- The Pound to Euro exchange rate is 0.17 pct higher on a day-to-day basis; GBP/EUR is now at 1.1878.
- The Pound to US Dollar exchange rate is 0.46 pct higher at 1.5806.
- The Pound to Australian Dollar exchange rate is 0.45 pct higher at 1.6978.
- The Pound to New Zealand Dollar exchange rate is 0.48 pct up at 1.9724.
Please Note: The above are spot market quotes; your bank will affix a discretionary spread to the figures when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.
16:47: A long-term breakout for GBP beckons
Matt Weller at GFT:
"GBPUSD approaching post-jobs report highs at 1.5820 - Daily close above here would represent major long-term breakout."
16:11: Miles ahead
We have a MPC member due to deliver a speech at 16:30, Professor David Miles will address the Money Macro and Finance Conference. Anything significant could shift Sterling.
16:06: "We are looking for euro weakness against the GBP"
Kathy Lien at BK Asset Mangement sniffs further Euro weakness against the UK currency:
"We are looking for euro weakness against the GBP and the NZD. Persistent improvements in the U.K. economy will make it difficult for Bank of England Governor Mark Carney to convince investors that the outlook for the U.K. is grim.
"84 cents is a very important support level for EUR/GBP that we expect to be broken in the medium term with a potential move down to 82 cents for the pair. If Carney remains dovish, we would view that as an opportunity to sell EUR/GBP at a higher level."
15:25: GBP/USD "today the price may fall down"
Latest technicals from RoboForex suggest a decline in GBP/USD:
"Pound is still moving near its maximums; right now, the market is in the middle of the fifth ascending wave with the target at 1.5890 (at least). As a rule, in the middle of the wave, the market may form a consolidation pattern; right now, we can see signs of divergent triangle pattern. We think, today the price may fall down towards the level of 1.5560 and then start a new ascending movement to reach the target at 1.5850."
13:39: UK interest rate hike in November 2014? The latest standings
So here are the standings with regards to a 7% unemployment rate hit / potential interest rate hike:
- Bank of England MPC: Q3 2016
- City Economists (Reuters poll): Q4 2015
- RBS: Q1 2015
- Bond markets: Q4 2014
"The fall in the unemployment rate, which Governor Carney said needs to fall to +7% before the BoE would consider raising rates, has not altered current market expectations of the timing of the next rate hike. The UK futures market continues to price in a +80% November 2014 UK rate hike," says Dean Popplewell at Oanda.
13:27: RBS forecasting 7% unemployment to be reached in Q1 2015
Market chatter is today focused on the possibility of an earlier-than-communicated interest rate rise at the Bank of England owing to the improved employment picture. Remember, employment hitting 7% is one of the triggers the BoE could will be awaiting before considering raising rates.
Ross Walker at RBS says he sees a rate rise in Q1 2015:
The 24k fall in unemployment (three months to July) was driven by an 80k rise in employment.
On a 'US non-farm payrolls equivalent' basis, an 80k rise in the UK is akin to around 400k in the States.
UK employment is 275k, 0.9%, up on a year ago, a solid increase.
The detail of the latest employment data was also encouraging, with the 80k rise more than accounted for by full-time employee jobs (+104k) ie, the gains in employment do not result from part-time or self-employment (which might be regarded as disguised weakness both part-time and self-employment continue to fall).
Average working hours also increase, rising 0.5% in the three months to July if existing employees working longer hours bodes well for future employment.
Overall job creation continues despite an ongoing drag from public sector layoffs.
"It is early days, but these data challenge both the MPC's projections for the unemployment rate, which they expect to reach its 7% threshold around Q3 2016, and the consensus among City economists: a recent Reuters poll showed the modal forecast for the 7% threshold to be reached in Q4 2015, with a skew towards a later outcome. The RBS forecast is for 7% to be reached in Q1 2015.
12:14: Bank of England failing to keep GBP down
Stephen Gallo at BMO Capital Markets isn't impressed with the Bank of England's ability to keep interest rates and the British Pound down:
"The BoE’s new “macro-pru” toolkit is still not reflected in the UK curve or in the value of the GBP and that is really all we have to say for right now."
Trade-weighted GBP has risen to an 8-month high in London.
12:08: Business Representatives Express Concern Over Youth Unemployment
John Allan, the Federation of Small Businesses’ (FSB) National Chairman, said:
"Ongoing progress in reducing unemployment is welcome and fits in with recent positive news, though we remain concerned that the number of young people who are long term unemployed is stubbornly high. Our research shows small businesses are crucial to getting these long term unemployed into jobs. To help them do so, the key is to better communicate the support available to businesses looking to recruit.
Stephen Gifford, CBI Director of Economics, said:
"Despite better news on the direction of travel, youth unemployment is persistently high and growth alone will not address this problem.
“We’ve called on the Government to reduce employers’ National Insurance to help tackle this, and the launch of the Million Jobs campaign further emphasises the need for action to help young people enter a tough jobs market.”
*The story up until 11:46: UK Unemployment Stats Ensure Strong UK Data Run Continues
Today the ONS reports that the headline unemployment rate actually fell to 7.7 pct; analysts had expected it to stay at 0.78 pct.
"August’s employment data on Wednesday morning revealed a surprise drop in the unemployment rate to 7.7%. There was also a greater than expected drop in the number of people claiming unemployment benefits of 32,600, the 10th consecutive monthly decline. The major cause of sterling hitting a 7-month high against the dollar over 1.58, and a 7-month high against the euro, was the unemployment rate which had been expected to remain at 7.8%," says Andy Scott at HiFX.
UK Pound Shoots Higher, But Then retreats
As the below chart shows, today's trade in the British Pound Sterling has been interesting.
Boris Schlossberg gives the following explanation:
"Although cable initially soared through the 1.5800 level, the pair quickly gave up most of it gains as currency traders remained wary of Mr. Carney's testimony.
"If the BOE chief remains unapologetically dovish in spite of the clearly improving UK economic landscape, cable could see further profit taking as markets will continue to price ultra low UK interest rates for the foreseeable future."
What Would it Take to Send the Pound Higher Tomorrow?
"However, if Governor Carney acknowledges the recent strength in the UK economy and assumes a more neutral tone in front of the Parliament, cable could quickly revisit the 1.5800 level as bullish sentiment returns," says Schlossberg.
* Note that Pound Sterling Live has had a slow start to today's publishing schedule owing to a technical issue. Thank you for your patience!