USD weakness continued throughout yesterday's trading session, with GBPUSD finishing higher for the first time in five days. The EUR benefitted from the weakness in USD, despite the European Commission cutting its outlook for the eurozone economy, suggesting that growth will be dragged lower due to a contraction in the German economy. The Commission now expects the economy to grow by 0.8% this year, versus 1.1% growth forecasted earlier this year, adding to stagflation fears.
UK job numbers were mixed this morning, with UK wage growth hitting a record high in the three months through July at 8.5%, including bonuses. However the unemployment rate rose to 4.3%, and the 207,000 jobs were lost in that same period. GBP is unmoved so far.
Market rates
* Daily move - against G10 rates at 7:30am, 12.09.23
** Indicative rates - interbank rates at 7:30am, 12.09.23
Data points
Speeches
None today.
Our thoughts
This morning’s job numbers are evidently a non-event for GBP in the short-term, but the data casts doubt on the state of the UK economy in light of job losses, as well as unemployment rising. It seems growth concerns of the UK economy will likely be the driver for GBP instead of increases in interest rates. Any talk of a recession will likely be negative for GBP, particularly versus USD.
US inflation numbers and Thursday's ECB meeting are the highlights for the rest of the week. Headline inflation in the US is expected to rise, but should we see the core number rise as well then expect the market to buy into USD, causing the currency to strengthen further. Thus, any spikes in GBPUSD and EURUSD should be viewed as opportunities to buy USD. The EUR gained yesterday on what looks like repositioning in the market ahead of Thursdays ECB meeting. Unless we see an overtly hawkish ECB then we would expect the EUR to continue to weaken considering continued stagflation concerns.
Chart of the day
This morning’s job numbers really highlight the underlying concerns of the UK economy, with the unemployment rate continuing to rise higher and the number of jobs losses now at the most since 2020. GBP which was once buoyed by expectations of higher interest rates could now be weighed down on UK growth concerns.
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