Sterling strengthens against US dollar after UK unemployment data

UK unemployment rate rose to 4.3% in the three months to March

Sterling was strongly supported yesterday, strengthening between 0.5% and 0.75% against the US dollar and yen, slightly less against other major rivals and remaining stable against the euro.

This was despite a dearth of data yesterday.

No shortage of data this morning, however. We have just seen the first of today’s three major data releases, the adjusted experimental unemployment rate in the UK which rose to 4.2% in the three months leading to August 2023. This was up from 4.0% in the previous three-month period.

In reaction to the ‘experimental’ unemployment figures, the pound has strengthened by 0.75% against the US dollar this morning.

Today we will get Purchasing Managers’ Index (PMI) readings from the major Western economies, including the UK at 9.30 a.m. However, we have already seen services PMI in Japan at 51.1, lower than the anticipated 52.9. Also in Japan, the manufacturing PMI missed market expectations of 49, coming in at 48.5 in October.

Germany’s GfK Consumer Confidence data is set to fall to a seven-month low of -28.1 in November, worse than forecasts of -26.6. Consumer sentiment decline is largely due to rising energy and food prices.

Returning to yesterday, however, the biggest story was the plunge in the value of the US dollar, particularly against sterling and the euro. The dollar index fell to its lowest since September, as the markets factored in a more dovish Federal Reserve and wavering bond yields.

Early in the day, US Treasury 10-year yields went over 5% for the first time since 2007, before slipping back. In the UK, meanwhile, 30-year gilts hit a yield of 5.209%. This means that government borrowing hit its most expensive rate for 25 years, as global investors bet on higher UK interest rates.

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GBP: Pound at two-week high against the dollar

Sterling bounced back to its strongest position for 12 days against the dollar yesterday, although there was nothing decisive about GBP/EUR.

Data released this morning, so far, have been UK unemployment from the Office for National Statistics, delayed by a week, but finally put and the so-called ‘experimental’ official data showed the rate rose to 4.2% in the three months to August 2023.

Shortly there will be PMI and the CBI Business Optimism Index, neither of which are predicted to be very optimistic.

GBP/USD past year

 

EUR: Euro strengthens in interest rate decision week

The euro strengthened decisively against all but the pound yesterday, including by more than 0.5% against all the major dollar currencies.

This was despite the ropy state of much of the eurozone economy, and the widely viewed prospect of no interest rate rise when the European Central Bank meets on Thursday.

This morning, GfK Consumer Confidence for Germany reached -28.1 in November, when -26.6 had been expected.

We have also just had a flash reading for Germany’s manufacturing PMI which rose to 40.7, versus the 40.5 anticipated. The services PMI for the German economy dropped to 48.0 versus the 50.0 expected.

 

USD: Dovish mood dents dollar

The dollar weakened almost across the board yesterday, in a quiet start of the week for data.

This afternoon we will get flash readings for PMI, with both services and manufacturing finely balanced around 50. Over 50 denotes that business leaders are optimistic, while a reading below 50 means they are pessimistic.

Tomorrow there will be a speech from Federal Reserve chair Jerome Powell, but the big event of the week will be the GDP reading for Q3 (July to September).

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