Lockdowns ease in China is boosting investor sentiment

GBP

The pound strengthened on Tuesday against both euro and US dollar after strong labour market data. The unemployment rate dropped to 3.7% from 3.8%, which is the lowest level in fifty years. The UK added 83k jobs in the three months to March, 5k more than the market expected. Average earnings, with bonuses included, surged 7.0% in March, far higher than the 5.4% the market was looking for.

With the data being stronger than market expectations, this will maintain pressure on the Bank of England to continue to raise interest rates. The spillover effect will lead to higher inflation as more people in employment will lead to further consumer spending.

In contrast, Governor Bailey speaking on Monday predicted unemployment to rise in the coming months as companies will struggle to cope with slow economic growth and projects inflation to rise to 10%. In turn the BoE has therefore stated that only limited interest rates were needed from here but data could influence their decision making in the coming months.

USD

The dollar fell for a third successive day as investor appetite increased for riskier bets.

In China, the easing of lockdowns is improving investor sentiment. Shanghai on Tuesday achieved a third consecutive day without any new infections outside areas under the strictest lockdown measures. Residents are waiting for an easing of the rules currently scheduled for 1 June. The positive news has helped investor sentiment and boosted the overall mood amongst investors.

Retail Sales figures published on Tuesday showed a 0.9% increase in April, and Core Retail Sales increased to 1%. This wasn’t enough to push the dollar higher on Tuesday.

Key announcements

07:00 – GBP – CPI YoY – Actual 9% from previous 7%
07:00 – GBP – Core CPI YoY – Actual 6.2% from previous 5.7%