Carney Hints at Rate Cut
The pound to US dollar rate felt the effects of downbeat comments from Mark Carney yesterday, causing it to fall back below the 1.31 level. The governor of the Bank of England (BoE) suggested that an interest rate cut could still be on the horizon because a rebound from Brexit uncertainty wasn’t guaranteed and UK economic growth left room for improvement.
Mr Carney said: “This rebound is not, of course, assured. The economy has been sluggish, slack has been growing, and inflation is below target. As is entirely appropriate, there is a debate at the MPC over the relative merits of near-term stimulus to reinforce the expected recovery in UK growth and inflation.” His comments subsequently led currency markets to price in a higher chance of a BoE rate cut by the end of the year.
Weekly US Jobless Claims Fall
The dollar, which was already benefitting from risk sentiment in the aftermath of US-Iran tensions and ahead of the anticipated signing of a US-China trade deal next week, was given a further boost by employment figures yesterday. New applications for US jobless benefits fell more than expected last week, with initial claims for state unemployment benefits dropping to 214,000 for the week ending 4 January. The fourth weekly decline in a row is in stark contrast to the jump seen in early December, which was blamed on Thanksgiving being a later-than-normal. However, the US job market appears to be cooling, with the number of Americans on unemployment rolls surging at the end of last year.
Meanwhile, John Williams, president of the New York Federal Reserve Bank, said yesterday that low inflation and low interest rates are both likely to remain for years. That presents a challenge for US Federal Reserve monetary policymakers because it limits their ability to cut the benchmark interest rate in the event of a recession.
In contrast to the UK’s empty economic calendar, the US dollar is in for a busy day, with a slew of influential figures due for release. Nonfarm Payrolls are expected to increase by 164,000 jobs in December; the Unemployment Rate is forecast to remain unchanged near a 50-year low of 3.5%; the year-on-year rate of increase in average hourly earnings is expected to hold steady at 3.1%; and, investors will closely monitor the Labor Force Participation Rate, which has hovered around 63% with little improvement in the last 5 years.
The UK economy must wait until Monday for a slew of data of its own, which includes GDP, Manufacturing Production and Industrial Production figures.
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