Sterling has continued its move higher this morning with the GBP/USD rate breaking above the 1.41 handle shortly after the release of another solid set of employment data from the UK. The FTSE 100 is trading back lower on the week with the latest currency moves having a clear negative impact on the benchmark.
Pound strength weighs on the FTSE
Whilst the rise seen in recent weeks in cable has been more due weakness in the Buck than an appreciation of the pound, sterling is making steady gains elsewhere with the GBP/EUR trading close to a 4-month high. This strength in the domestic currency is taking its toll on the stock market, with the FTSE 100 falling lower by around 20 points. The breakout rally which began around the turn of the year has had its wings clipped by the recent rise in the Pound and it may well need some sort of pullback in Sterling to allow another thrust higher for the index.
UK unemployment at lowest level in 4 decades
A better than expected set of data released this morning on the UK labour market has provided the catalyst for the latest push higher in the pound, with unemployment coming in at a 42-year low. A drop of 3k in the unemployment rate alongside a 102k increase in the number of people in work beat analyst expectations and provides further evidence that the jobs market remains robust despite the uncertainty surrounding Brexit.
Mnuchin welcomes weaker dollar
The US dollar has fallen back across the board this morning following a press briefing from US Treasury secretary Steve Mnuchin in which he welcomed the depreciation seen in the world’s reserve currency over the past 12 months. The remarks were made upon his arrival at the World Economic Forum in Davos and have seen an immediate market reaction with a trade-weighted index of the the US dollar falling to its lowest level since 2014. Once the pandemonium of Trump’s 2016 election victory had subsided, many believed the US dollar was set for a prolonged period of appreciation with long USD calls almost unanimous amongst money managers. Despite a continued tightening of monetary policy from the Fed, with 3 rate hikes in 2017, The greenback was the worst performer amongst G10 currencies and has now dropped more than 10% since Trump’s inauguration.