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Pound Jumps as UK Labour Data Impresses, British Politics Limit Gains

June 11, 2019 8:26 am | Modified June 12, 2019 9:11 am
Brexit, EUR, GBP, JPY, USD | BY Ben Scott

The British Pound was able to climb against the Euro (GBP/EUR) and US Dollar (GBP/USD) yesterday on better-than-forecast UK labour market data. The GBP/USD currency pair manages to trade above the 1.27 barrier as UK Average Weekly Earnings came in at 3.1% and employment registered a growth of 49K. However, the Pound has remained under pressure from Brexit uncertainty and the current Conservative Party leadership race. Voting will begin tomorrow. 

Wednesday has begun with GBP/EUR trading at levels of 1.1236, while the GBP/USD currency pair trends in the region of 1.2744.

Yesterday: A combination of political uncertainty in Westminster, plus the damaging impact the Brexit saga is having on the UK economy as a whole are combining to keep the Pound under pressure against both the US Dollar (GBP/USD) and Euro (GBP/EUR). With more high-profile economic news to come in the near-term and questions over where the country goes next having the potential to linger until well after the summer, any respite for the British Pound exchange rate against major foreign currencies could be in short supply.

 UK Unemployment Rate to Move Pound Exchange Rate?

Yesterday’s disappointing Gross Domestic Product (GDP) update, which saw the UK economy slowing four times faster than had been expected in April, knocked the British Pound against major currencies including the US Dollar (GBP/USD) and Euro (GBP/EUR). Temporary closures of car manufacturing lines, something which had been planned to coincide with Brexit, were seen as playing a key role in driving the numbers lower, but attention will now be on today’s unemployment and wage data. Any dramatic slowdown in the Average Weekly Earnings figures could be the trigger for another round of Sterling selling, as this has the potential to fuel fears that inflation may soon begin to slow.

Trade woes keep risk appetite in check

The US may have withdrawn its threat of further tariffs on Mexico, but Donald Trump yesterday turned the focus of his trade rhetoric back to China. The President has suggested that if he doesn’t get to meet with China’s President Xi to discuss trade at this month’s G20 meeting in Japan, the US would immediately retaliate by expanding tariffs on a further $300 billion worth of Chinese imports. This line has served to limit risk appetite and arguably capped gains for the likes of the Euro against the US Dollar (EUR/USD) during yesterday’s trade. It remains likely that Europe will soon find itself in the firing line for US tariffs, too.

GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements

The Pound fell against the US Dollar (GBP/USD) yesterday after a big shortfall in April’s UK GDP growth. Today’s unemployment and average wage data is now in focus as the market looks for further clues as to just how damaging Brexit uncertainty is proving to be for the UK economy. Any shortfall here, especially in terms of slowing wage increases, could fuel concern that the Bank of England (BoE) may need to join other major central banks in taking a more dovish tone over its monetary policy outlook.

The Euro has been trading essentially sideways against the US Dollar (EUR/USD) with upside limited by risk aversion amid concern that the European Union will soon find itself next in line for the attention of US trade negotiators. There’s limited economic data due from the Eurozone in the day ahead, so any overtures on a potential trade dispute could serve to provide fresh direction for the pair.

The British Pound continues to extend losses against the Euro (GBP/EUR), with yesterday’s disappointing UK economic growth data being the latest factor to weigh on the Sterling exchange rate.  Given the shortfall in yesterday’s GDP growth estimates when compared to previous forecasts, there’s the potential for further disappointment in today’s employment data. Add to this the ongoing political uncertainty in the UK, and even at these depressed levels, the Pound could find itself susceptible to further losses in the near-term.

Why did it move? – US Dollar to Japanese Yen (USD/JPY)

The US Dollar nudged higher against the Japanese Yen (USD/JPY) last night amid optimism that the US and China would meet at the upcoming G20 summit. The pair remains well below the April highs of 112.40 and should the meeting not take place, this could result in further selling pressure as investors dump the US Dollar for the perceived safe-haven of the Yen. From Friday’s lows around 107.85, the pair now trades close to highs for the month at 108.55.

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