GBP: Sterling boosted by jobs report
Yesterday was the quietest day for Brexit headlines in a while and, alongside strong numbers within the latest jobs report, sterling has pushed higher and is now only a hop, skip and a jump away from the 1.30 level against the USD.
Away from the circus of Westminster, data from the UK economy continues to show decent levels of strength. Employment in itself is a lagging indicator – it is slow to react to positive or negative changes in the economic cycle – so although these numbers are ostensibly for what happened in November, they are more a representation of what happened in the summer. The summer was a good time for the UK economy and so wage and jobs numbers reflect a time of strong business confidence, heightened productivity and relative political calm. Remember that?
The focus of these numbers will come from Threadneedle Street and we do expect inflation to run higher eventually as wage pressures build but, for now, uneasy business sentiment will cap that impulse and will likely do so until Westminster and Brussels agree on something more concrete than the simple need for a deal by March 29th. As it stands, however, given these numbers and in the event of a deal on Brexit and a smooth exit from the EU at the end of March, the Bank of England could very easily raise interest rates in May.
Sterling focus will now fall on Prime Minister’s Questions at noon today ahead of next week’s vote on Theresa May’s Plan AB.
USD: No news on trade
The dollar is mixed this morning as the outlook for a trade agreement between the US and China remains unrealised. We are hearing reports this morning from the US that yesterday the White House rejected a trade planning meeting with Chinese counterparts this week due to outstanding disagreements over the enforcement of intellectual property – which will not have helped market sentiment. The White House has denied that these talks were cancelled, with National Economic Council Leader Larry Kudlow saying that talks with China are on track.
The US government remains on shut down. Senate leaders have agreed to vote on separate proposals to reopen the US government this Thursday, including President Trump’s plan for funding of the border wall with Mexico.
For now, we expect the dollar to remain quiet.
Have a great day.