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Labour squeeze

As economies begin to re-open, businesses have struggled with the seeming lack of labour supply;  generous unemployment benefits have reduced the incentive to work in both the US and the UK. People have been hesitant to return to their jobs in hospitality, forcing career changes; it’s thought over 1.3 million foreign workers left the sector during the pandemic in the UK. 

The story is similar in the US, with Non-Farm Payrolls data falling short of forecasts in April and May thanks to the lagging hospitality sector. However, the recent data release on Friday has breathed new life into the US labour market, with 850,000 jobs added in June, over 40% of which were in hospitality. In addition to this, wages also saw some growth, with Average Hourly Earnings rising 0.3% from May. President Joe Biden has hailed the ‘switch being flipped’ in the US economy, with workers no longer competing over roles; instead, companies are now competing for staff. Analysts have also expressed how the June readings indicate that the recovery is in line with those of a robust economic rebound. 

Bottom line: Despite what appears to be an uptick in the US labour market, the unemployment rate is yet to improve, with more than nine million people out of a job, three million higher than February 2020. Economists expect the labour supply squeeze to ease during the latter half of the year as government support winds down; however, there is no guarantee the two million employment shortfall will recover with many taking early retirements. A similar story is happening in the UK; companies will face a choice of holding onto their staff or making redundancies as furlough comes to an end this month. This could create further unemployment in the UK, and economists are still undecided on the magnitude so far. While returning to normality is a positive, businesses across the world will still face difficulties as widespread government support is removed; it remains to be seen how big of an impact this will have.  

The week ahead


Last week, the Pound traded flat against the Euro but dipped to a low of 1.3733 against the US Dollar after Friday’s US Non-Farm Payrolls data—a level not seen since the 16th of April. This move quickly reversed with Sterling beginning the week above the 1.38 handle against the Greenback as market participants eye the full easing of coronavirus restrictions in the UK, set to be announced by Boris Johnson later today. The calendar in the early part of the week looks light, but Friday will see Bank of England Governor Andrew Bailey speaking along with a slew of economic data releases, including Gross Domestic Product and Industrial Production.

  • Final Services Purchasing Managers’ Index released this morning came in above expectations, hitting 62.4 from 61.7 previously.
  • Tomorrow’s Construction PMI is predicted to tick higher from 64.2 last month to 64.3 this month.
  • On Friday, the UK’s m/m GDP for May will be released. The figure is forecast to fall from 2.3% to 1.9%.
  • Friday’s m/m Industrial Production figure is expected to jump from -1.3% to 1.8% for the month of May, while m/m Manufacturing Production for the same period is predicted to climb from -0.3% to 1.2%.
  • At 11am on Friday, BoE Chief Bailey will speak at the Global Forum on Productivity in Venice.


The Euro fell 0.6% against the US Dollar from open to close last week, settling below the 1.19 handle versus the Buck and trading at its weakest level since April 4th of this year. The Euro’s move lower was primarily triggered by broad US Dollar strength rather than anything of note on the continent, with the Federal Reserve’s hawkishness boosting the Dollar. The spread of the Delta variant of Covid-19 and Europe’s vaccination lag remains in the spotlight. Still, several data points and European Central Bank releases could help temper the Euro’s recent decline. Most notably, the European Central Bank’s special strategy meeting—in which policymakers will likely discuss allowing higher inflation—concludes on Thursday.

  • Eurozone Final Services PMI, released this morning, surprised to the upside, coming in at 58.3 vs 58.0 from the initial release.
  • German and the wider Eurozone ZEW economic sentiment is set for release tomorrow morning. The consensus is for the German figure to fall from 79.8 to 75.0 and the overall figure to drop from 81.3 to 79.0.
  • Wednesday sees the release of the quarterly European Commission Economic Forecasts. Last time, they predicted 2021 growth to come in at 4.2% and 2022 growth to reach 4.4%.
  • The ECB’s Monetary Policy Meeting Accounts will be released Thursday afternoon.
  • On Friday, the President of the ECB, Christine Lagarde, will also speak at the Global Forum on Productivity in Venice.


After another week of US Dollar appreciation, Friday’s post-NFP correction provided a little short-term relief for Euro and Sterling bulls. From a technical standpoint, the USD looks to be heading into overbought territory, but a reversal towards a 1.20 EUR/USD and a 1.40 GBP/USD looks unlikely for now. The US will begin its trading week on Tuesday after a long holiday weekend, with the spotlight on the day’s ISM Services PMI release along with Wednesday’s Federal Reserve meeting minutes. However, for the most part, market participants will be looking for President Biden to deliver an update on how many Americans have received at least one shot of the Covid-19 vaccination, with a figure of 70% targeted. 

  • Tuesday’s ISM Services PMI is predicted to come in just a shade under the previous release (64.0) at 63.9. 
  • On Wednesday evening, the Federal Open Market Committee will release June’s monetary policy meeting minutes.
  • Thursday sees the last notable data release of the week, with US Weekly Jobless Claims expected to come in at 375K vs 364K previously. 

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