- Pound (GBP) trades steadily after UK unemployment beat expectations at 3.9% vs 4.7% forecast, claimant count surges
- Political momentum is injected into Brexit talks boosting hopes of a trade deal
- US Dollar weakens after Fed announces it will buy up corporate bonds. US retail sales up next.
- At 06:15 UTC, Pound US Dollar exchange rate (GBP/USD) is trading +0.4% at US$1.2650
After a late rally into the close on Monday, the Pound US Dollar exchange rate is extending those gains in early trade on Tuesday. The Pair settled in the previous session +0.7% at US$1.2604, having picked up from a low of US$1.2454.
At 06:15 UTC, GBP/USD looks to target US$1.27 amid a broadly weaker US Dollar on additional Fed stimulus and ahead of US retail sales data.
The Pound has shrugged off data which shows that UK claimant count surged to 528,900 in April, well above the 370,000 forecast. The unemployment rate unexpectedly held steady at 3.9% versus the 4.7% forecast. The unemployment figure remains so low because the government jobs retention scheme is keeping the real number of unemployed hidden. The furlough scheme is delaying the brutal blow to the labour market which is expected to show when the scheme changes in August.
Brexit remains front and central for Pound investors. Boris Johnson and the EU have agreed to intensify talks on future trade and security following a level video conference aimed at injecting some political momentum into the stalled negotiations. Boris Johnson still insists that he believes that the UK has a very good chance of securing a deal with the EU and urged for a deal to be ready by the end of the summer. The upbeat comments boosted optimism and lifted the Pound higher.
The US Dollar slipped in late trade on Monday on news that the Federal Reserve will start to buy up individual corporate bonds, on top of the Exchange Traded Funds (ETF) that it already is purchasing. This comes as part of its continued effort to support market functions and ease credit conditions.
Stimulus talk also boosted the mood in the market, dragging the safe haven US dollar lower following reports that the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its efforts to stimulate the economy post coronavirus.
Investors will now look ahead to US retail sales data. Analysts are expecting retail sales to rebound in May, jumping 8% following from April’s -16.4% historic loss. Part of this is expected to be deferred spending. However, with 13.3% unemployment, sales will also naturally take a hit going forwards unless these people are re-hired.
Retail sales are particularly important in a consumer-based economy, such as the US. A weak reading could send the safe haven US Dollar higher.
