The recent revival in Sterling sentiment continued yesterday as the UK currency rallied against almost all of the 16 most actively traded currencies amid a distinct lack of economic data that failed to provide any further indication on the probability of an interest rate cut next month.
The Pound has also found support in the strength of the UK labour market with unemployment falling to the lowest level since 1975 as companies stepped up hiring following the fastest pace of economic expansion since 2004.
Jobless claims fell 6,400 in December while average hourly earnings, including bonuses rose 4% in the 3 months through to November and the report shows that the UK economy remained strong enough to spur jobs growth before a slowdown caused by higher credit costs.
Rising personal income should provide a boost to consumer spending but a recent report from the British retail consortium showed that sales could slow of the next quarter as higher prices and falling home values dampen sentiment.
Therefore, the focus this morning will fall on the UK retail sales numbers and the report may follow the BRC sales monitor with the annual pace of growth plummeting to 3.3% in December from 4.4% the previous month.
The positive momentum surrounding the Euro has been severely tested this week as the single currency failed to make any gains against the Dollar yesterday and made further losses versus the Pound amid reports that the European trade balance actually narrowed by more than expected in November.
An obvious slowdown in the import and export component showed that the European economy is beginning to feel the effects of a global credit crunch and that may prompt a change in sentiment from the ECB’s governing council.
However, the majority of policy makers are still more concerned with the upside risks to inflation than the apparent slowdown in economic growth and the Euro will continue to flourish as the ECB maintains a hawkish stance on monetary policy.
The Dollar has recovered some losses against the Euro in recent trading sessions and also remains largely resilient versus the Pound despite the worsening economic outlook that may see the Federal Reserve lower interest rates by more than 50 basis points this month.
The FOMC have lowered borrowing costs by 1 percentage point since October alone but the degree of the economic slowdown has brought the economy to the brink of a recession and the Fed must act now to provide some relief to the consumer.
In addition, the annual pace of inflation rose at a much slower pace than anticipated in December, signalling that prices may decelerate in the months ahead after recording its fastest pace in 17-years in 2007.
In addition, the Dollar failed to find any support following a shockingly weak Philly Fed index, which showed that manufacturing output fell to the lowest level in over 6-years.
Data Released 18th January
U.K 09:30 Retail Sales (December)
U.S 15:00 Leading Indicators (December)
U.S 15:00 Michigan Sentiment (January Prelim)
written by Adam Solomon
Related posts:
- The Pound finds further support as UK unemployment falls to the lowest level since 1975
- The Dollar slumped against the Euro, dropping to the lowest level on record
- The Pound falls against the majors after UK retail sales dropped to the lowest level in almost two years
- The Pound climbs against the majors as UK unemployment records the biggest drop in nearly two years
- The Pound drops to lowest level against the Euro since August 2006
