The Pound failed to consolidate above the $2.00 barrier against the Dollar yesterday but the UK currency took advantage of broad Euro weakness to close above 1.2600 last night despite a sharp increase in UK unemployment.
Claims for jobless benefits climbed for a fifth straight month in June and by the most since the end of the last recession in 1992 as the slump in the economy forced homebuilders and Banks to cut jobs and stop hiring.
The number of Britons out of work and claiming unemployment benefits increased 15,500 from May, rising well above initial forecasts and a softening in the labour market may exacerbate the slowdown in the economy and lead to a contraction in growth.
The Pound declined against the Dollar in the aftermath of the report as the Bank of England fights to bring inflation back towards target but an interest rate increase at this stage would weigh on consumer sentiment and cripple the housing market.
The collapse of the U.S subprime mortgage market has cost financial institutions worldwide an estimated £208 billion in losses and writedowns, which has seen 94,000 job losses in the banking sector alone.
In addition, a recent report from two of the UK’s biggest homebuilders, Redrow Plc and Bovis Homes Group Plc, both said that they will slash their workforces by 40% with 4,000 jobs cuts since the start of July.
The Euro declined against both the Pound and the Dollar yesterday as the harmonised index of European consumer prices showed that inflation accelerated at the fastest pace in over 16-years in June and matched earlier estimates published on the 30th June.
The report from the European Union showed that the annual pace of inflation rose above 3.7% year-on-year last month led by a 19% surge in Transport fuels while the cost of heating oil increased 53% and had the biggest upward impact on inflation.
The European Central Bank raised interest rates by 25 basis points earlier this month and to the highest level in seven years at 4.25% as policy makers struggle to rein in consumer prices while the scope to continue monetary tightening may be limited as the economy stumbles towards contraction.
The Dollar has been susceptible to a number of economic and geopolitical issues in recent weeks and the U.S currency enjoyed a sharp intraday move against the Pound yesterday after U.S stocks rallied and oil prices tumbled.
Crude oil for delivery in August fell over $4 a barrel on the session after a report from the Energy Department showed that U.S inventories unexpectedly increased as supplies rose to 296.9 million barrels last week.
In terms of economic data, the Dollar also found some support after U.S consumer prices jumped 5% over the past year, the biggest increase since 1991, as record high food and fuel costs saw the cost of living rise 1.1% from May to record the second largest increase since 1982.
The report provides an indication of the problems facing the U.S economy but with inflation accelerating beyond initial forecasts, the Federal Reserve face a difficult balancing act in steering the economy away from a recession while keeping a lid on consumer prices.
Data Released 17th July
U.S 13:30 Initial Jobless Claims (w/e 12th July)
U.S 13:30 Housing Starts (June)
U.S 15:00 Philly Fed Business Index (July)
written by Adam Solomon
Related posts:
- The Pound rises for a fiurth straight day against the Euro following a particularly positive report on UK manufacturing
- The Pound appreciates further against the Euro after UK inflation rises to 2.5% in June, signalling the need for higher interest rates
- The Pound rises to the highest level since June 1981 against the Dollar
- The Pound remains largely unchanged despite UK unemployment falling for the second consecutive month in August
- The Pound finds further support as UK unemployment falls to the lowest level since 1975
