The new payrolls scramble

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Idea of the Day

So the pound has now turned into the dollar. From giving only half a glance last month, sterling will be all over the details of the labour market data today after the Bank of England put a 7% unemployment rate as an intermediate policy target, with lots of caveats and still retaining the 2% inflation target. As with the US, there are two measures, the claimant count (narrow measure of those claiming benefit) and the labour force survey (of households), from which the unemployment rate is derived.

The rate (which is a 3-month average) is seen holding steady at 7.8% when released today where it has held for the previous 3 months. In theory, a lower figure should be sterling positive, on the notion that the first rise in interest rates could well come earlier than anticipated, but the reaction since last Wed’s announcement has already in part anticipated that, with sterling and market interest rates higher (which was probably not the reaction Carney was after). This could limit sterling upside today in this scenario.

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Data/Event Risks

GBP: All eyes on the labour market data as unemployment is now an intermediate target of the Bank of England’s policy regime. Minutes to August policy meeting are also released at the same time, which will be scanned for the degree of unanimity on the latest changes to the policy regime.

EUR: The data today is expected to show an increase in Eurozone growth for the first time in seven quarters, with stronger than expected data from France today helping this belief and making it more likely that the expected 0.2% gain is surpassed.

Latest FX News

JPY: Stocks firmer again and this has helped USDJPY hold above the 98.00 level for most of the Asia session. But the yen continues to defy expectations of further structural weakness in the bigger picture, so has some work to do if it’s going to get back on a trend weakening course.

AUD: Steady tone to the Aussie overnight after recent losses back below the 0.91 area.

GBP: Sterling not always the best behaved currency and especially when liquidity is thinner in August and that was pretty evident during yesterday’s late European trade, when cable briefly nudged above the 1.55 level before pulling back to the 1.5440 level towards the close

Further reading:

Germany’s Economy Grows a strong 0.7% – EUR/USD extends gains

French Economy Jumps 0.5% in Q2 2013 – EUR/USD rises

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