Pound Sterling (GBP) Losses Softened by Positive Labour Data
The pessimism caused by Mark Carney’s comments yesterday has been somewhat countered today thanks to better-than-expected employment figures from the UK. Jobless Claims Change printed at -4.8k, instead of an expected 2.8k rise, while unemployment dropped to 5.1%. The number of people aged between 16 and 64 has hit its highest level since records began in the 70s.
Global Unemployment Tipped to Hit 200 Million
A reported by the International Labour Organization (ILO) has predicted that global unemployment will increase 2.3 million during 2016. A further 1.1 million people becoming jobless in 2017 will push the total number of unemployed past the 200 million mark for the first time since records began. 27 million fewer people were unemployed in 2007 before the financial crisis struck.
It will be developing markets that bear the brunt of the increase in unemployment, as they will be the hardest hit by last year’s slowdown in growth.
Will Carney Still be Bank of England Governor When Rates Increase?
In another dovish speech Bank of England (BoE) Governor Mark Carney has reinforced market pessimism, stating that it’s not the right time to start raising interest rates. Predictions of a rate hike in 2016 are melting away, with the general consensus being that the first increase in UK interest rates won’t come until the beginning of 2017.
In the face of his continued dovishness, some commentators have begun to wonder whether an interest rate hike will arrive before Mark Carney’s term as Governor ends in Summer 2018.
Pound Still Bullish, Softened by Better-than-Expected German ZEW Survey Results
Sentiment among economists regarding the German economy is better than anticipated, although outlook has still dropped significantly. While analysts were predicting a drop from 16.1 to 7.9, the final result printed at 10.2. Attitudes towards the current situation unexpectedly improved, rising from 55.0 to 59.7 despite a forecast drop to 53.1.
The results have softened the GBP/EUR exchange rate, although Pound Sterling is still trading firmly in positive territory.
Better-than-expected inflation data from the UK has seen the GBP/EUR exchange rate continue its uptrend. Meanwhile, concerns that the condition of the Chinese economy will weigh heavily on Germany’s influential sentiment survey have seen the Euro languishing.
UK CPI Surprises Forecast with Unexpected Rise: GBP/EUR Continues Bullish
After the slew of negative UK data released over the past couple of weeks, today’s Consumer Price Index figures come as a welcome reprieve. Forecasters have been surprised by 1.4% growth in core prices, 0.2% higher than forecast, while the non-core index increased from 01.% to 0.2% year-on-year (YoY). Monthly consumer prices rose 0.1% in December, despite a forecast of no change.
The positive news has distracted investors from comments made by the Monetary Policy Committee’s (MPC) newest member, Gertjan Vlieghe, warning that interest rates may stay low for some time.
In his first speech since becoming a member of the MPC, Vlieghe said, ‘for a given level of growth, real interest rates may remain significantly lower than in the past. The possibility of this scenario makes me more patient, other things equal, before raising rates, because we may not have to raise rates very much once we start. Moreover, the fact that, at very low interest rates, policy cannot respond as effectively to bad news as it can to good news also makes me more patient before raising rates.’
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading around 1.3167.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Soft
The German Consumer Price Index figures showed the expected level of growth, with CPI confirming the initial forecast of 0.3% and the harmonised index printing at 0.2%. Investors have mostly overlooked the data, however, in preparation for bigger releases later in the day.
Further evidence of a slowdown in China, with GDP coming in -0.1% below the forecast level and -0.2% below Beijing’s growth target, has worried economists, although investors seem relatively unperturbed by the data today. European stock markets are all trading positively, with the FTSE 100 up 1.6%, the French CAC 40 at 1.9% and the German DAX gaining 2%. The Shanghai Composite Index closed up 3.22%.
While bond yields are still low, suggesting investors are currently risk-averse, German 10-year yields did rise to 0.49%. There is a widespread belief that worries over the health of the Chinese economy will factor heavily into the results of today’s ZEW German Economic Sentiment survey, with the result expected to drop from 16.1 to 7.9. China is also expected to feature heavily in policymaker discussions when the European Central Bank (ECB) meets on Thursday to decide monetary policy. Markets aren’t predicting any additional stimulus as a result of the meeting, although there is currently a 50% chance of an interest rate cut in March.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending between 0.7582 and 0.7657.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: ZEW Economic Survey and Carney Still to Come
Both the UK and the Eurozone still have important data to release which could fuel volatility in the GBP/EUR exchange rate. The ZEW Economic Sentiment Survey is due to show a significant drop in positivity which could contribute to furthering the Euro downtrend. Bank of England Governor Mark Carney is due to speak later today and it is likely that his comments will spark movement one way or another.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.3050 and 1.3137.