This morning saw the release of the latest UK employment data, showing a drop of 31,000 to 1.58 million for the number of jobless claims. This means that the economic indicator has declined to its lowest level since 1975. Despite this upbeat data point the pound has moved off its earlier highs as wage growth continues to disappoint. The FTSE 100 is looking to recover Tuesday’s losses and is higher by 21 points at the time of writing.
Wages take the shine off strong labour market data
In addition to the fall in the jobless rate the fact that 315,000 more people are in work compared with a year earlier suggests that the UK’s labour market remains resilient despite all the uncertainty surrounding leaving the EU. The unemployment rate ticked lower by 10 basis points to 4.7% in another positive development, but the markets haven’t reacted kindly to the release. This is likely due to the average earnings index which fell to 2.2% from 2.6% previously and came in below consensus forecasts. The stubborn nature of wage growth to support the improvement of other labour market metrics in recent data has seen traders remain cautious in entering long positions in the pound. Sterling has recovered somewhat since posting its lowest level in almost two months against the US dollar yesterday and received a boost this morning with a poll on Scottish independence suggesting that the majority would vote to remain.
Busy economic calendar ahead
The next 36 hours are jam-packed with potentially major market moving releases as no fewer than four central banks announce their latest monetary policy decisions over the course of the next day and a half. The US Federal Reserve set the ball rolling at 6pm tonight, where it is widely expected to increase rates for a third time in just over a year. Whilst derivatives markets imply that this move is almost entirely priced in, there is still a good chance that traders may experience high volatility around the event. The economic projections - in particular the dot-plot of voting member’s forecasts for future rates - are sure to garner close scrutiny as traders attempt to decipher further clues as to the future rate path of the Fed. Chair Yellen’s press conference also has the potential to move markets and a further reiteration of her recent shift to a more hawkish stance could spark a rally in the buck. The Bank of Japan, Swiss National Bank and Bank of England follow their US counterpart overnight and through the European session tomorrow, however little by the way of any material change in policy is expected by these. Nonetheless the accompanying statements have the potential to drive flows in individual currencies and the local stock markets.