GBP rallies against USD as unemployment unexpectedly drops

Thursday, October 15, 2015

After UK inflation data released earlier this week posted a surprise decline into negative territory, investors were bracing themselves for a similar negative outlook for the UK labour market with stocks trading sideways throughout much of the session. However, market participants were pleasantly surprised as the ILO unemployment rate posted a modest decline to 5.4% during the three months to August from 5.5% the previous period. The claimant count rate held firm at 2.3% in September while average weekly earnings in the three months to August increased slightly by 3.0% y/y compared to 2.9% y/y previously.

The pound sterling recovered all of the previous sessions losses on yesterday’s encouraging employment data, posting its biggest one day rally against the dollar since May as it targeted the 100 day moving average towards 1.5500. With US retail sales and PPI data coming in below analyst expectations the dollar experienced continued selling pressure allowing the pound to rebound 1.5% higher against the greenback and while Tuesday’s inflation data put a dampener on hopes of an incoming rate hike by the Bank of England, wage data released yesterday offered some indication into the outlook for wage inflation which managed to slightly offset Tuesday’s pessimism.

Investors around the world were less than convinced by yesterday’s mixed bag of economic data with US producer prices dominating the short term investment outlook. The weaker than expected US PPI final demand reading, which slipped to -0.5% y/y in September from 0.0% the previous month and came in below expectation of -0.2% y/y, saw investor demand for gold improve significantly. Spot prices for the precious metal rallied for a fourth consecutive session as investors rushed into the perceived safe haven with prices finding firm support around the previous session’s close, adding as much as 1.8% yesterday before closing 1.3% higher towards$1,184/oz. SPDR Gold Trust ETF holdings rose to their highest levels since mid-July, just short of 695 tonnes on a combination of global macroeconomic jitters and a weaker USD.

Uk unemployment falls to a seven year low

UKUEILOR Index UK Unemployment 2015 10 15 08 01 26

Sterling rebounds strongly against USD

GBP Curncy British Pound Spot 2015 10 15 08 03 04

Persistent macro jitters push gold prices higher

XAU Curncy Gold Spot Oz D 2015 10 15 08 09 08

Events for today

0600

JP

Aug

Industrial Production

1330

US

Oct

NY Fed Manufacturing

1330

US

Sep

CPI

1330

US

w/e

Jobless Claims

1500

US

Oct

Philly Fed business index

1530

US

w/e

EIA Nat Gas

OE: 

Nov  Sugar (NYBOT) 

Topics: USD, Gold, GBP
More from: Kash Kamal