The Pound to US Dollar exchange rate (GBP/USD) slid below 1.6700 last night as the Minutes from the Federal Reserve’s latest meeting showed that policymakers intend to continue tapering by -$10 billion per month, despite the recent downturn in American economic output.
“Several participants argued that, in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favour of continuing to reduce the pace of purchases by a total of $10 billion at each meeting”.
There had been fears that Fed board members might have voiced concerns as to the wisdom of slowing down stimulus whilst economic activity is slumping. However, the optimistic tone of the report assuaged these concerns and helped the US Dollar rally by around 0.4 cents.
Fed members noted that the economy would likely expand at a “moderate pace” through the rest of the year and that Unemployment would “gradually decline” once the cold weather has passed.
During the morning GBP/USD tanked by -0.8 cents to a weekly low of 1.6637 in reaction to a surprising rise in the headline UK Unemployment Rate. The key British labour market gauge rose from 7.1% to 7.2% in the three months leading up to December, however, the rest of the jobs figures painted a much more optimistic picture.
Average weekly earnings increased mildly from 0.9% to 1.1%: a clear step in the right direction but nothing to get too excited about seeing as CPI inflation is currently running at 1.9% and has been running much higher than that for the last four years.
More encouragingly though: the Employment Change indicator rose by 193,000 and the Jobless Change index tumbled by -27,600; this means that the uptick in the headline jobless figures is most likely a consequence of inactive workers rejoining the labour market, rather than an increase in dismissals.
Sterling regained ground against the ‘Greenback’ during the afternoon as US housing data printed dismally, most likely as a result of the polar vortex that has brought many parts of the United States to a standstill.
US Housing Starts plunged by -16% during January – the biggest monthly drop in nearly three years, and the third steepest decline in the last two decades. The Pound to US Dollar exchange rate climbed back above 1.6700 in reaction to the worryingly soft result.
‘Cable’ was also boosted by investor optimism surrounding a deal between Vodafone and Verizon, which is likely to see a large influx of capital entering the United Kingdom in the next few weeks as shareholders receive their payouts from the deal.
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