Rebound in Pound as Jobs Explode

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Market Drivers for December 18, 2013
UK Jobless drops to 7.4% from 7.6% eyed
EUR IFO in line at 109.5
Nikkei 2.02% Europe .52%
Oil $97/bbl
Gold $1232/oz.

Europe and Asia:
EUR IFO 109.5 vs. 109.5
GBP UK Jobless 7.4% vs. 7.6%
GBP MPC 0-0-9

North America:
USD Building Permits/ Housing Starts 8:30
USD Flash PMI 10:00

Much better than expected UK unemployment number boosted the pound in morning London trade today taking the pair to a high of 1.6360 as traders were impressed by continuing economic growth in the British Isles. UK unemployment declined to 7.4% from 7.6% eyed as the three month decline in unemployment rose to nearly 100K.

Jobless claims also fell by more than expected dropping by -36.7K versus -35.0K eyed while average weekly earnings increased by 0.9% versus 0.8% forecast. The news on the labor front suggests that UK economy shows no signs of slowdown and that growth for Q4 will likely be revised upward as better job conditions translate into more consumer spending and business activity.

The MPC also released its minutes today with voters keeping QE and rates on hold as expected at 0-0-9. The notes indicated that business investment may be rising, that upside risks to inflation may be rising and that further sterling strength may create disinflationary pressures and may therefore be unwelcome. It appears that the BoE is finished with any additional monetary stimulus via QE but is not yet ready to consider tightening rates as it would like to see several more quarters of consistent growth in the UK economy.

In Europe the German IFO printed right in line with expectations at 109.50 with Expectations component rising to 107.4 versus 106.5 projected while current assessment slipped somewhat to 111.6. The news had no impact on the euro, but the pair slipped lower through the 1.3750 level on EUR/GBP sales as sterling strength dominated the European session trade.

In North America the focus will turn to the marquee event of the week as currency markets await the FOMC decision and the post press conference for any guidance on the prospects for taper. Consensus view is that the Fed will not even consider a taper until January at the earliest, but there are some analysts who believe that the Fed could surprise the markets today.

Our colleague Kathy Lien noted yesterday that,” The worst outcome for the dollar would be if the Fed says no to tapering and forward guidance. By standing down completely and providing zero forward guidance, Bernanke would effectively be telling us that he is relegating the decision to his successor. The market would expect Janet Yellen, who is one of the most dovish members of the FOMC to prolong Quantitative Easing and delay tapering.”

If that indeed turns out to be the scenario in today’s press conference then both the euro and cable could soar on the taper delay news challenging the yearly high at 1.3830 and 1.6465 respectively as the global day progresses.

Boris Schlossberg
Managing Director

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