- UK unemployment drops to lowest level since 2008, but wage price growth stalls
- FED raise rates and signal 4 more years to come next year - USD firmer on news
- NZ GDP stronger than expected - largely due to increase in diary prices
There was good news from the UK yesterday as it was reported the unemployment rate fell to 5.2% at the end of October. This is the lowest jobless rate in 9 years. Unemployment had been expected to remain around 5.3%. The UK is approaching full employment and with earnings continuing to grow this should , in theory , force inflation higher in the medium term. External factors such as the depressed oil price are keeping a lid on inflation for now but if the data in the UK continues in this vein it won't be long before the talk of interest rate rises return which should support the Pound.
Overnight the Federal Reserve finally raised the fed funds rate by 25 basis points which was almost universally expected. They were perhaps as dovish as they could have been by stating that any further rate rises would be gradual and data dependant with a particular emphasis on the labour data. The dot path would suggest a further 4 more rises next year and it would seem that Yellen has done enough to appease both buyers and sellers of the dollar for now. Ultimately the hiking cycle has begun and the divergent monetary policy stance should prevail in the end and the dollar should strengthen overall.
The New Zealand Dollar strengthened last night as it was reported that economic growth accelerated sharply in the third quarter with GDP rising by 0.9%. Q2 was revised down to 0.3% however annual growth remains at 2.3% in line with expectations. Most of the growth can be attributed to the service sector. Last week the RBNZ signalled an end to near term easing and the positive GDP release will only support that view.
This morning we await Retails sales data from the UK which is expected to rise by 0.6% on the month. This afternoon's jobless claims from the United States will be closely scrutinised after the interest rate announcement last night.