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Pound Exchange Rate Momentum Limited vs EUR, USD after Mixed UK Employment Data

After doubts emerged over the government’s strategy on Brexit the strength of Pound exchange rates has been limited, particularly as the latest domestic data proved less-than-encouraging.

  • Lower UK unemployment rate contrasted by rising jobless claims – Strength of domestic labour market called into question
  • ECB easing speculation weighed on Euro demand – GBP EUR exchange rate trended higher despite calls for Greek debt relief
  • US political uncertainty continued to hang over US Dollar – ‘Greenback’ appetite limited by signs of disunity in Trump team
  • Yellen comments forecast to prompt GBP USD exchange rate volatility – Higher odds of December rate hike could shore up US Dollar

Euro Dented as Greek Debt Relief Prospects Declined

The appeal of the Euro diminished after German Finance Minister Wolfgang Schäuble dismissed the idea of giving Greece debt relief. With German opposition to any easing of the Hellenic nation’s austerity burden still clearly entrenched the Pound extended its gains against the single currency. Thus, towards the close of the European session the GBP EUR exchange rate was trending higher in the region of 1.16.

(Previously updated at 12:12 on 16/11/16)

Markets have remained relatively jittery, meanwhile, with political risk dragging on both the Euro and US Dollar.

Mixed Employment Data Limited GBP Exchange Rate Strength

The latest raft of UK labour market data proved rather mixed, offering the Pound (GBP) only a limited boost on Wednesday morning. While the ILO unemployment rate unexpectedly dropped to a fresh eleven-year low of 4.8% in the three months to September this was contrasted by a marked uptick in the number of jobless claims in October. This suggests that the economy may have started to lose momentum in the last month, with a higher level of unemployment claims pointing towards a deterioration in the labour market. However, as average weekly earnings were found to have improved modestly in the same period the Pound was able to maintain a general uptrend.

Greater cause for confidence in Sterling could emerge on Thursday, with forecasts for October’s retail sales figures positive. Should consumer confidence be indicated to have remained resilient, despite ongoing global political uncertainty and market turmoil, then GBP exchange rates could push higher. Even so, if the sales data proves disappointing then investors may be prompted to sell out of the Pound once again.

Prospect of Further ECB Easing Boosted GBP EUR Exchange Rate

Despite President Barrack Obama issuing a fresh call for Greece to be given ‘meaningful debt relief’ the appeal of the Euro (EUR) has remained muted. Investors remain sceptical of the chances of the Hellenic republic seeing any significant easing in the stance of its creditors; something that limits the potential of the domestic economy to recover. This remains a source of doubt hanging over the outlook of the Eurozone, particularly as a sense of political risk mounts within a number of member nations. Altogether there has been little significant reason for markets to favour the Euro, allowing the Pound Euro (GBP EUR) exchange rate to make some modest gains this week.

Recent dovish commentary from members of the European Central Bank (ECB) have also weighed on the single currency, with policymakers appearing to remain on course to extend the quantitative easing program before the end of the year. If ECB President Mario Draghi offers further support for the prospect of additional policy easing then the GBP EUR exchange rate could trend higher, particularly if domestic data continues to paint a rather mixed picture.

US Dollar (USD) Volatility Forecast ahead of Comments from Fed Chair Yellen

Uncertainty has continued to characterise the outlook of the US economy, given that the Trump administration has been showing further signs of division in recent days. Even so, stronger-than-expected advance retail sales data encouraged investors to price in higher odds of an imminent Federal Reserve interest rate hike. This gave the US Dollar (USD) a fresh boost, helping to once again eclipse concerns over the President Elect’s lack of clear economic strategy.

Volatility for the Pound US Dollar (GBP USD) exchange rate seems likely on Thursday as Fed Chair Janet Yellen is due to testify before the Joint Economic Committee. The tone of Yellen’s comments could have a major impact on the odds of a December rate hike, with any dovishness likely to discourage demand for the ‘Greenback’. As Jane Foley, Senior FX Strategist at Rabobank, notes:

‘There are presently so many unknowns with respect to US fiscal policy projections that it is very difficult to draw strong conclusions about a Trump presidency will change the landscape for the Fed.  That said, as a rule central banks dislike volatility and in this context it is possible that Fed Chair Yellen may use her testimony later this week to calm the market.’

Current Interbank Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending higher at 1.16, while the Pound US Dollar (GBP USD) pairing was trending narrowly around 1.24.