Momentous Data Yields Miniscule Results
UK labor data posted a big upside surprise and the Eurozone officially climbed out of recession overnight, though surprisingly, British pound gains were somewhat muted and the euro actually fell on the news.
UK employment data handily beat market expectations as jobless claims shrank by nearly twice the amount forecast, helping to boost the British pound (GBP) in early-London trade today.
The UK claimant count saw a decline of -29.2K versus -14.3K forecast, but the unemployment rate remained steady at 7.8%.The prior month’s data was also revised to -29.4K from -21.2k originally reported.
This was the best labor reading since February 2009 as the claimant count rate declined to 4.3%, while the fall in claims was the biggest since May 2010. Overall, this was a very solid report which demonstrated that the UK recovery continues to gather momentum in the second half of this year as job growth picks up.
The one key factor that may hamper growth, however, is the lack of progress in wage increases, as average earnings rose only 2.1%, which was very close to the expected rate.
In addition to the employment data, the Bank of England (BoE) also released the latest meeting minutes, which showed that the monetary policy committee was unanimous on both its rate policy and quantitative easing (QE), voting 9-0 on both.
However, on the issue of forward guidance, Martin Weale dissented, seeking a shorter-term horizon for the 2.5% inflation target knockout. The minutes stated, however, that he "nevertheless intended to form his future judgments about the application of guidance and the knockout criteria in line with the framework adopted by the Committee."
Overall, there were no major surprises in the BoE minutes, but the tone struck some market observers as being more hawkish than dovish, and that tempered some of the GBPUSD rally. The pair initially spiked to a high of 1.5505 in the aftermath of the release, but drifted lower to trade at 1.5460 by mid-morning London dealing.
Eurozone Recession Is Finally Over
In the Eurozone, the GDP data also beat to the upside, printing at 0.3% versus 0.2% expected. The growth was spurred primarily by the sharp rebound in German GDP, which rose 0.7% versus 0.6% forecast. French GDP also showed a very strong improvement, increasing by 0.5% versus 0.1% forecast.
The Eurozone has now finally come out of its longest recession in the post-war period, but the data had little impact on EURUSD, which actually moved lower on the news, breaking below the 1.3250 level.
Today’s Likely Focal Point in the US
The recent weakness in the euro (EUR) is less a function of any fundamental problem in the region, but rather a reaction to the strengthening US dollar (USD) as the market continues to price in the prospects of tapering by the Federal Reserve in September.
Yesterday's decent US retail sales data did not pose any obstacles to that timeline, and today, the market may focus on the comments from St. Louis Fed President James Bullard, who will speaking about the low inflation readings.
See related: Retail Sales Decrease, but Taper Talk Doesn’t
For now, the USDJPY rally has stalled ahead of the 98.50 level, but if the pair can clear that barrier over the next few days, it could make another run at the key 100.00-level resistance as long as US data remains supportive.
By Boris Schlossberg of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.