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BoE Remains Cautious Despite Unexpected Improvement in Labor Market

BoE Remains Cautious Despite Unexpected Improvement in Labor Market

2010-03-17 12:14:00
John Rivera, Currency Analyst
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FX3.17

Fundamental Headlines

• Merkel Promotes Expulsion Option – Wall Street Journal
• OPEC Decision Lifts Oil Prices – Wall Street Journal
• China asks US groups to back currency stance - Financial Times
• Jobless Claims in U.K. Drop at Fastest Pace Since 1997 as Economy Recovers- Bloomberg
• European Union Says Some Nations May Be Too Optimistic on Cutting Deficits - Bloomberg



GBP/USD
  The number of unemployed in the U.K. unexpectedly fell by 36,000, which was the most since 1997. Forecasts were for jobless claims to increase by 6,000 with the claimant count remaining at 5.0%. The sharp fall in filings led to the unemployment rate slipping to 4.9% suggesting that the pace of the U.K. recovery is strengthening. However, a look at the breakdown did reveal that 28% of out of work Britons have been without a job for over 12 months. This will continue to weigh on consumer consumption. Indeed, the minutes from the BoE’s policy meeting shows that the committee still sees considerable slack in the economy. Therefore, the  MPC believes that despite rising inflation expectations a protracted recovery will ultimately weigh on prices, allowing them to remain on hold. To discuss this and other topics, please visit the GBP/USD forum.


EUR/USD–  European construction output fell 2.2% in January, which was the most in a year. Germany led the weakness which is concerning, as the nation’s largest economy has paced the recovery. Demand from abroad has been the main source of growth and unless domestic demand firms, the sustainability of the recovery could be in jeopardy. Building activity dropped 2.5%  erasing the 1.2% improvement from the month prior. The ECB has left their benchmark rate unchanged as policy makers continue to see downside risks to growth.  To discuss this and other topics, please visit the EUR/USD forum.
 

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