GBPEUR/GBPUSD
The Pound rallied strongly against the U.S Dollar yesterday, rising 0.7% in London to a high of $1.6409, while the UK currency also 0.6% versus the Euro, breaching above 1.12 for the first time since November 19th. Sterling also made gains versus the majority of the 16-most actively traded currencies, following reports that UK unemployment unexpectedly fell for the first time since February 2008.
According to the report from the Office of National Statistics, claims for jobless benefits declined by 6,300 in November to 1.63 million. Economists had predicted an increase of 12,500, while the number of people seeking work in the three months through October rose 21,000 to 2.49 million, the smallest gains in 17-months.
The UK economy has lost more than 600,000 jobs since the recession began, with people under the age of 24 most affected. Howard Archer, chief European economist at HIS Global Insight in London, said that the figures were “a real shot in the arm. It’s very encouraging. However, I don’t think it’s an end for the rise in unemployment, which may continue until the end of the next year.”
The Pound rose strongly after the report and the UK currency is approaching the 38.2% Fibonacci retracement level at 1.1270 versus the Euro, an area where we can expect some resistance. The number of claims rose by 53,000 to 28.9 million in the quarter through October, the biggest increase for 17-months.
The claimant count was unchanged at 5% and unemployment has risen less than expected, as companies froze pay and cut working hours to retain skilled labour needed once the economy returns to growth. At 7.9% the UK unemployment rate is lower than the 10% in the U.S and 9.8% in the Euro-zone and many economists expect the jobless rate to peak below the postwar high of 11.9% in 1984.
The Pound also received a boost against the U.S Dollar yesterday, as UK stocks advanced 0.3% in London, led by homebuilders, after Citigroup Inc advised its clients to buy shares. The FTSE 100 Index has now rebounded 51% since the March 3rd low and is poised to record its biggest annual gains since 1997, as central banks cut interest rates to record lows and pumped roughly $12 trillion into the economy.
The UK currency continued to gain momentum yesterday, despite comments from Bank of England policy maker David Miles, who said that it’s “natural” for officials to consider changes to the deposit rate. Miles was the sole voice for a greater increase in bond purchases last month, as the majority voted for a £25 billion increase.
Policy makers discussed lowering the deposit rate in November, saying that a reduction could “ease monetary conditions further.” The Central Bank elected to refrain from making any such announcement at its December 10th meeting, when policy makers stuck to their plan to buy as much as £200 billion of bonds with newly created money.
EUR/USD
The Dollar lost some momentum against the Euro yesterday, falling from the strongest level since October, amid speculation that the Federal Reserve may reiterate its pledge to keep the target lending rate at virtually zero for an extended period. The U.S currency traded at $1.4579 against the Euro, after reaching the strongest level since October 2nd.
U.S consumer prices increased 0.4% last month, led by higher prices for food and medical care, stoking inflationary pressures and putting pressure on the Fed to exit ultra-loose policy measures. The core index that excludes food and energy was unexpectedly unchanged for the first time since December 2008.
The Euro declined further against Sterling yesterday, amid concerns over the debt position among ECB member states, while ECB governing council member Ewald Nowotny said that he sees no reason to raise interest rates in the first half of 2010. Nowotny said in an interview in Vienna that “our interest rate decision is to be seen in connection with our price stability goal and in this context I do not see major threats for stability in the near future.”
Goldman Sachs Group Inc recommended its clients buy the Euro against the Dollar, predicting that the single currency will reach $1.55 in three months, amid a weak U.S economic recovery. The Dollar reached a two month high of $1.4504 on Tuesday, as speculation gathered momentum that Greece struggled to address concerns that it isn’t doing enough to reduce its debt.
Data Released 17th December
U.K 09:30 Retail Sales (November)
U.K 11:00 CBI Distributive Trades Survey (December)
U.S 13:30 Initial Jobless Claims (w/e 12th December)
U.S 15:00 Leading Indicators (November)
U.S 15:00 Philly Fed Business Survey (December)
written by Adam Solomon
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