UK Employment Data Causes Sterling Boost

16 August, 2012

Positive news for sterling yesterday, as UK jobs data proved to be significantly better than expected, with the Office of National Statistics announcing the total jobless figure fell by 46,000 to 2.56 million in the three months to June. The number of people claiming Jobseeker’s Allowance fell by 5,900 to 1.59 million. However, a number of critics have pointed out that this drop could possibly be the result of firms taking on more temporary staff during the Olympic season, and we may see a sudden drop in upcoming months. The ONS appear to agree with this estimation for the time being. Sterling was also assisted by the Bank Of England minutes showing policymakers did not discuss an interest rate cut, probably in response to the better than expected employment data. However, the minutes also indicated that certain members of the Monetary Policy Committee discussed the possibility of further QE in the coming months. Nevertheless, this positive data allowed sterling to euro exchange rate to rise to its highest level in 2 weeks.

There was little news from the Eurozone yesterday, which is of little surprise considering Tuesday’s announcement that the Eurozone economy as a whole had shrunk. Germany also experienced less growth than anticipated, which, as Europe’s strongest economy, is something that would worry investors, as some analysts now begin to worry that signs of weakness in the German economy would make them less likely to support government rescue efforts for the broader Eurozone. We are likely to hear more news in the upcoming days, but for the time being, yesterday’s silence in the Eurozone allowed sterling to make short-term gains against the European currency.

In Asia, there is concern about the rate of Chinese growth, where gross domestic product has been growing at an annual rate of 7.6%. Here in the Europe we might consider this level of growth to be incredibly good, but recent statements from the Chinese government suggest that it is far below their growth target. Although the Chinese Yuan is one of the currencies we don’t currently provide here at Currency Index, the Chinese Economy has a close link with its largest economic rival, the United States Of America. If this slowdown in the Chinese economy continues, we could see the US dollar gaining strength, which would cause weakness in both sterling and the euro. However, we may see a level of weakness in the US economy in the upcoming days, as the heads of Barclays, Citigroup, Deutsche Bank, JPMorgan, UBS, HSBC and Royal Bank of Scotland are summoned to America for alleged manipulation of the Libor inter-bank lending rate. Banking scandals tend to cause a small level of weakness in a nation’s economy, and this may become the case in America should these allegations prove to be true.

With the Olympics now over and done with, we are now back in the ‘real world’. If, like many, you have been out of the loop with regards to currency transfers or exchange rate news, please don’t hesitate to give your account manager at Currency Index a call to see how we can help you.