by Damian -
The pound strengthened for a second day versus the euro but following this mornings UK unemployment report and Minutes sterling has once again fallen.
The US dollar has strengthened significantly over the last month against both the pound and euro. Today’s FOMC announcement will be of key interest for the markets today as we will get an indication of whether the Fed will taper its asset purchases by a further $10 billion. However, the key issue is whether it will change its forward guidance on interest rates. Markets believe there is good chance this could happen and will prove USD positive.
UK unemployment has fallen to the lowest level in six years, indicating continued strength in the labor market that Bank of England Governor Mark Carney says will eventually boost earnings. The jobless rate fell to 6.2 percent in the three months through July from 6.4 percent, a bigger decline than economists had forecast. The problem is that whilst the UK economy is strengthening, the recovery has yet to boost our wages!
Bank of England policy makers split for a second month, with the majority citing increased risks from Europe and muted inflation pressures as supporting the case for keeping the key rate at a record low. Minutes of the Monetary Policy Committees Sept. 3-4 meeting published today showed policy makers Martin Weale and Ian McCafferty voted for a 25 basis point increase. The bank held the key rate at 0.5 percent this month.
The Aussie dollar has weakened significantly against sterling over the past two weeks amid doubts a liquidity infusion by the People Bank of China indicates a monetary policy shift in the South Pacific nations biggest trading partner.