Profit-taking could lead to a pull back in sterling, with the British currency hitting fresh highs following Bank of England policy surprise. Governor Mark Carney finally laid bare the bank’s new unemployment goal. Investors extended the US dollar’s slide to a fifth straight day after disappointing US employment data forced many traders to flush out expectations of a September stimulus taper from the Federal Reserve.
The euro hit new seven-week highs against its main US rival, supported by solid German data. However, upcoming second quarter eurozone GDP data will provide a key test for the single currency, which would be vulnerable to a collapse if Europe’s recession drags on. Investors will assess Britain’s latest export figures but rather than trade on the data, investors will probably use as an opportunity to position for UK inflation and unemployment reports; two indicators now central and key to BoE policy.
Sterling
The British pound touched fresh highs after holding a one-day jump against several currencies which could provide a platform for further gains in the days and maybe even weeks ahead. The pound’s sudden change in fortunes comes after the Bank of England uncovered a new unemployment target with forward rate guidance in its Inflation Report.
US dollar
Against a currency basket, the greenback has fallen to its lowest since June 19th on the back of five straight days of losses. The slide follows data that showed US employment growth in July was below market expectations and at a four-month low; a pace not considered enough to convince the Federal Reserve to withdraw stimulus for the economy. Albeit from multi-year lows, data showed US jobless claims ticked up in the latest weekly period.
The disappointment comes despite the country’s overall jobless rate dropping from 7.6 per cent to 7.4 per cent in June amid worries some in the economy had given up searching for jobs.
The US dollar could rebound early if data on US retail sales in July suggest consumers are still contributing to faster economic growth.
Euro
The euro registered fresh seven-week highs against a sliding US dollar but the single currency is showing signs of vulnerability in other crosses ahead of critical GDP reports. Robust German manufacturing and export data have damped concerns about further European Central Bank policy action. Analysts expect preliminary eurozone second quarter GDP number to flash green and put an end to recession.