Sterling stalled by uptick in unemployment rate
Monday’s improved UK GDP data supported sterling but that support has waned a little in early UK trade after slightly disappointing employment data. The UK unemployment rate rose very slightly to 3.7%. It is still remarkably low in a historical context and probably as near to full employment as it is possible to achieve but it gave GBP traders pause for thought. The rise in average earnings remained fairly elevated at 6.1%; a tad below market expectations and a smidgen above the previous month but not enough to cause a major move in the value of the pound. Traders are now awaiting the Bank of England’s financial stability report. In the context of world finances that has to be a misnomer. When it comes to financial matters stability is not a factor at the moment. Once that report is in the public domain the next step will be UK consumer price inflation data, which is due tomorrow morning and which should show a slight slowdown in the pace of inflation. For now, though, the pound is buying USD 1.2270 and EUR 1.1640 at the interbank level.
AUD makes solid gain after consumer sentiment bounce
Australia’s Westpac consumer sentiment index was published late yesterday evening and the 3.0% gain came as a bit of a shock. The spring back from the previous months minus 6.9% is nearly a 10% swing and that gave AUD traders a reason to be cheerful. Hence the GBPAUD rate dropped from yesterday’s high of AUD 1.8235 to this morning’s AUD1.8085 and it looks set to slide further. On a cautious note, this morning’s release of the NAB business confidence index was a very contrary affair. That index dropped from 0 the previous month to minus 4 in November; a continuation of a downward trend that started in May 2021. So risk-averse AUD sellers may consider this a ‘make hay’ opportunity but if this pair gets below AUD 1.8020, where it previously found support, the next target will be AUD 1.7750 or thereabouts.
US inflation due today ahead of FOMC on Wednesday
The US dollar is likely to be volatile and the next 36 hours. We will see US consumer price inflation data today as a prelude to tomorrow’s US Federal Reserve interest rate-setting meeting. There is a strong chance that the annual rate of inflation will have slipped to 7.3%, down from 7.7% in October. No doubt the Fed will see that as vindication of their aggressive interest rate hiking cycle but the annual rate of inflation is almost like a moving average. i.e. only data from the last 12 months is included so any substantial inflationary pressures that happened 13 months ago are forgotten. That said, the GBPUSD rate is in a tiny range of just half a cent between USD 1.2250 and USD 1.23 and the EURUSD rate is trading in an even narrower 1/3 of a cent range around USD 1.0550. Let’s see what the next couple of days can do to that.