GBP

The pound shed its recent gains against the euro and dollar this morning after a mixed bag of labour data for May and June.

UK wages were above expectations with average earnings up 7.3% in May. The forecast was 7.1%. The unemployment rate meanwhile ticked up to 4.8% from 4.7% in May. Overall that’s a 0.2% drop since March but still nearly 1% higher than before the pandemic.

The figures show a labour market in recovery but may still fuel concerns about labour shortages and the possible impact on inflation of higher wage growth. The Bank of England (BoE) will monitor employment and inflation data this week to help decide when its right to raise interest rates.

Boris Johnson remains set to remove all Covid restrictions next week. This should further boost UK activity numbers and give the BoE reason to bring its rate expectations more in line with market expectation of a move early next year.

Currently global inflation is driving the currency markets and it will be interesting see which major central Bank blinks first.

USD

Yesterday evening, US Federal Reserve Chair Jerome Powell stated the US  job market is still way off where it needs to be for the Fed to reduce economic support put in place for the pandemic. 

He also commented on the state of US inflation, stating: “Inflation has increased notably and will likely remain elevated in coming months before moderating.” This restated the central bank’s faith that current price increases, despite concerns about unmoored inflation, are tied to the reopening of the economy and will prove fleeting or transitory. 

Powell’s comments were in line with the Fed’s recent stance that a continued fast recovery will bring millions of people back into employment. However, inflation will remain around the Fed’s 2% target with no rush to tighten monetary policy. At the last policy meeting some officials indicated the Fed may need to reign in its stimulus faster than anticipated because of the jump in inflation. This led to renewed strength for the dollar.

Key announcements

11:00 – GBP – BoE Monetary Policy Committee member Saunders Speaks 
13:30 – USD – US Philly Fed manufacturing
13:30 – USD – US unemployment claims
14:15 – USD – US Industrial Production m/m
14:30 – USD – US Fed Chair Powell Testifies