Unemployment Creeps Down

The main UK news yesterday was a fall in unemployment to 7.7%, with a record number of people in the UK now in work. Lower unemployment naturally shows economic improvement and can help the Pound, but in the coming months it will be more important than ever for exchange rates since the Bank of England has stated that it will not raise interest rates until unemployment falls below 7%. That would be likely to give the Pound a significant boost – but we are still some way off, and although rates for sending money abroad in most currencies improved yesterday morning, it was only by a small margin, and most importantly the Euro and US Dollar rates are still trading below their recent peaks.

The evening’s headlines were then naturally taken up by the apparent resolution of the US debt crisis. The US government was due to run out of money at midnight, but a cross party deal was finally struck to raise the US debt limit and bring funding in to end the shutdown of federal services. US markets and the Dollar reacted positively, largely because the alternative was an unimaginable economic crisis. However, the bill only extends borrowing until February, so it would be fair to say that the USD could be seeing some troubled times during more last minute negotiations in the new year – or will the two parties come together and make a long term plan before then? The value of the American currency rides very much on the outcome.

Today we have retail sales figures in the UK at 9.30, and markets will be hopeful of more positive news for UK plc. We see the risk to the downside for sterling if there is anything less than a 2.1% increase in annual high street activity. One new plc which has not received good news, is the Royal Mail, where workers who have just been awarded over £3,000 of free shares, will be going on strike on November 4th. That’s gratitude!