Home Daily Commentaries UK unemployment falls to 4.2%, a welcome surprise

UK unemployment falls to 4.2%, a welcome surprise

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Tuesday 13 August, 2024

Daily Currency Update

In Europe, there were no data releases yesterday, leading to a pause in market activity. The euro remained within recent tight ranges as investors cautiously monitored developments in the Middle East. European policymakers continue to indicate that any potential interest rate cuts will depend on forthcoming economic data.

Following the Bank of England's interest rate cut on August 1st, the pound has faced pressure against the euro after a strong performance in July. The interest rate differential between the UK and Europe now stands at 1.5% and is expected to narrow to 75 basis points by mid-2025, potentially causing a slight weakening of the pound. However, today’s UK unemployment data showed a decline to 4.2%, better than the anticipated 4.5%, providing a positive surprise.

The US dollar has had a quiet start to the week, with European markets largely on holiday. The People's Bank of China (PBoC) has stated that it is closely monitoring US interest rate developments and is prepared to stabilize the yuan against the dollar. Markets are currently pricing in a 53.5% probability that the Federal Reserve will cut borrowing costs by 25 basis points at its next meeting.

Key Movers

Today, the German economic confidence indicator (ZEW Index) is set to be released, with an expected print of 31.8 compared to 41.8 in July. A weakening German economy might increase the likelihood of an additional 25 basis point interest rate cut by the ECB in their September meeting. Meanwhile, the euro remains firm as markets await crucial US inflation data later today.

In the UK, inflation data will be published on Wednesday, marking the first report since the Bank of England cut borrowing costs on August 1st. Recent inflation prints were 2%, and markets expect this week’s data to show an increase to 2.3%. The pound could see significant movement if the inflation data deviates significantly from expectations.

Last week’s market turmoil, driven by disappointing US economic data and growing recession fears, has calmed somewhat this week. Later today, US Producer Price Index (PPI) data will be released, followed by Consumer Price Index (CPI) data tomorrow. Both reports will be critical in shaping market expectations for Federal Reserve interest rate policy at their upcoming September meeting.

Expected Ranges

  • GBP/USD: 1.2770 - 1.2840 ▲
  • GBP/EUR: 1.1685 - 1.1735 ▲
  • GBP/AUD: 1.9395 - 1.9450 ▲
  • EUR/USD: 1.0910 - 1.0955 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.