The UK labour-market data was again stronger than expected for November, maintaining a very strong run of releases. There was a monthly claimant count decline of 36,700 and 18 out of the last 20 releases have been better than expected. There was also a decline in the ILO unemployment rate to 7.4% from 7.6% previously. This took the rate closer to the Bank of England’s 7.0% threshold for potentially considering an increase in interest rates and helped pushed Sterling sharply higher.
The Bank of England’s latest MPC minutes did make reference to the fact that further Sterling gains would undermine exports and contribute disinflationary pressure to the economy, but stronger employment data was a more important market influence. GBP/USD spiked higher to the 1.6350 area and extended gains to 1.6400 later in the New York session. There as also a sharp decline in EUR/GBP to below the 0.84 level as a buoyant reading for CBI retail sales helped bolster Sterling confidence.
The latest Japanese trade data was again weaker than expected with the 17th consecutive monthly deficit and a seasonally-adjusted deficit of JPY1.35trn. Although there was a robust export performance, imports rose by over 20% over the year. The deficit will maintain fears over the structural deficit and kept the yen on the defensive.
There were also reports that the Bank of Japan was confident in the ability to buy more bonds if required and USD/JPY moved back to the 103 area on expectations of medium-term yen losses.
The German IFO business confidence index was in line with expectations with an increase to 109.5 for November from 109.3 previously, the highest reading for four years. The overall impact was limited as markets had already priced in a firm German growth rate.
The latest US housing starts data was stronger than expected with an increase to an annualised rate of 1.09mn for November from 0.89mn previously while permits also moved above the 1.0mn level. The dollar briefly advanced against the Euro before retreating to the middle of recent ranges.
The primary market factor was a waiting game ahead of the Federal Reserve decision and the will they or won’t they decision on a tapering of bond purchases. Given uncertainty surrounding the decision and potential market reaction, caution inevitably prevailed as liquidity weakened ahead of the European close. EUR/USD settled around 1.3750 while USD/JPY maintained a constructive tone with a move to near 103.20.