Sterling found itself depreciating against the majority of its global currency peers last night as traders reacted to positive developments in the United States.
The Pound lost out on around -0.8 cents against the US Dollar, -0.6 cents against the Euro, -1.6 cents against the Canadian Dollar, -1.35 cents against the Australian Dollar and -1.3 cents against the New Zealand Dollar.
Sterling had rallied modestly against its currency rivals during the morning as the latest UK labour market figures reflected favourably, for the most part, on the British economy.
The headline Unemployment Rate held firm at 7.7%, but UK investors were buoyed by news that 155,000 people found their way into employment between June and August, and that the number of people claiming Jobless Benefits fell by -41,700 in September, which is the fastest fall since 1997.
However, the positive numbers were tempered by a minor 0.7% increase in Average Weekly Earnings, which, when paired with the 2.7% CPI inflation rate, means that real wages in Britain have now fallen to their lowest level since records began in 2001.
GBP saw its gains reversed against USD, EUR, CAD, AUD and NZD later on in the day as traders anticipated an eleventh hour deal to end the political impasse that brought the US government to a shutdown – temporarily furloughing hundreds of thousands of federal employees – and threatened to push the world’s largest economy over the fiscal cliff; a potentially mammoth debt default which could have profoundly destabilised financial markets.
Billionaire business magnate Warren Buffett aptly described the deadlock as a “political weapon of mass destruction”. The outspoken investor also questioned the ability of the United States to regain the trust of financial markets following the 2-week long debt debacle:
“Creditworthiness is like virginity, it can be preserved but not restored very easily”.
The fact that the US Dollar did not sink more dramatically against the Pound in the build-up to the deal – in fact it actually strengthened by around 2.0 cents during the 2-week shutdown – indicates that traders were confident that an agreement would eventually be met. This means that the relief rallies we are seeing at the moment are likely to be similarly muted.
Standard & Poor’s estimate that the furlough reduced US fourth quarter GDP by -$24 billion, equivalent to -0.6%, which is likely to have a negative influence on global risk sentiment in the long run. It is also worth noting that the possibility still exists for another government shutdown in the New Year, when the latest budget expires.
Subsequently, it is likely that Sterling could recover all, or at least the majority, of the losses that it suffered yesterday, during the next few weeks as markets begin to normalise following the past two weeks of turbulent trading.
Comments are closed.