Government data will be released this morning showing the latest situation for the UK’s labour market. Expectations are that unemployment will remain close to record lows and wages will continue to outpace inflation, which suggests a firmer labour market is underlying despite overarching political uncertainty. Speculation that firms are demonstrating a preference for flexible labour capital over more traditional capital investment in machinery or technology infrastructure is hardly surprising given the lack of clarity afforded by the Brexit deadlock. Still, a strong wage growth picture argues for Pound appreciation once the way forward comes into sharper focus.
Talks resume in Washington today between the US and China to find a resolution to the ongoing trade dispute. Donald Trump struck a positive tone regarding negotiations, all the while threatening tariffs on EU car exports. EU Commission President, Jean Claude Juncker, was quick to respond with a string of potential retaliatory action. It is worth noting that the motivation for Donald Trump’s comments is as yet unclear. Whether they are a credible threat or a political distraction from a capitulation in the US negotiation position with China, remains to be seen. Further threats toward the EU would likely undermine the EUR, given its emerging underlying economic fragility.
Despite mounting political turmoil in the UK, the Pound has proved resilient against the US Dollar. Some selling has been seen in recent hours, although this is in line with a broader swing to a risk-off bias which is supporting the greenback across the board.
The Euro continues to push away from last week’s lows, but concern over the Eurozone’s economic outlook has the potential to continue weighing here. Any renewed talk of stimulus from the European Central Bank (ECB) would be sufficient to resume the downtrend established at the start of the month.
The Pound has returned to trade around the 1.14 level which dominated for the early part of last week. Further clarity over Brexit and UK political risk is likely required before a meaningful break in either direction can be seen here.