A UK Labor Report 12 Years in the Making
GBPUSD got a big boost from sharply improved UK jobless claims data, although it failed to translate into a lower overall unemployment rate for the time being.
UK labor data showed the biggest improvement since 1997, pushing GBPUSD through the 1.6000 mark overnight, but the rally stalled ahead of the 1.6050 level after investors were slightly disappointed by the lack of improvement in the ILO unemployment rate.
Cable was the primary focus of the early-morning European session, rising nearly 100 points off the session lows as currency markets responded to the sharp improvement in the UK claimant count, which declined by -41K versus -24K expected. This was the best reading in a dozen years and the 12th consecutive monthly reduction in UK jobless claims.
The decline in joblessness did not immediately translate into a decrease in unemployment, however, as the ILO unemployment rate remained at 7.7%, matching last month's reading. Nevertheless, the much smaller claimant count will likely lead to reduction in the unemployment rate over the next several months, and that should prove supportive for the British pound (GBP) given the fact that the Bank of England (BoE) has tied its forward guidance on interest rates to the UK unemployment figures.
Another minor disappointment in today's UK labor numbers was the smaller-than-expected rise in average hourly earnings, which increased by only 0.7% versus 1.0% expected. Given the persistently sticky inflation rates of 2.5% or higher, UK workers are actually seeing negative income growth for now, and that may temper spending going forward. Thursday's UK retail sales data should provide an interesting glimpse into the strength of consumer demand.
In the meantime, GBPUSD remained bid above the 1.6000 level by mid-morning London trade, and the pair could see further relative strength as the day unfolds, especially given the ongoing debt-ceiling debate in the US, which looks to be moving closer to a resolution.
Big US News Likely to Get a “Ho-Hum” Reaction
With essentially just a matter of hours left until the US Treasury's October 17 deadline, US legislators continued their furious negotiations. As the last effort by GOP members of the House failed to take hold, the focus has moved back to the Senate, where majority leaders Harry Reid and Mitch McConnell appear to be close to an agreement. House Speaker John Boehner said that he would allow the Senate bill to be voted in on the House, and that could mean passage, as moderate Republicans would likely join Democrats to secure a majority vote.
The markets appear unmoved for the time being, however, as "headline fatigue" has clearly crept in. Now, perhaps the greatest surprise to any US budget deal may simply be a tepid market reaction since most of the news appears to be already priced in.
However, if the US actually fails to reach a compromise and enters a technical default, volatility could spike sharply, especially in USDJPY, which could quickly tumble towards a test of the 97.00 level as risk-aversion fears reignite.
By Boris Schlossberg of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.