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Sterling on the front foot after positive employment data

GBP - British Pound

Sterling started the day very much on the ascendancy yesterday, climbing nearly 0.5% against the US dollar, after being supported by strong data from the UK labour market. It showed that British employers had hired more people in October after the furlough scheme had ended versus in September.

Analysts expected a slowing down in the hiring rates after the end of the furlough scheme, so this was a shock to the market, and many believe gives the green light for the Bank of England to hike interest rates in their mid-December meeting. The UK unemployment rate also dropped to 4.3%, its lowest level in more than year.

The Bank of England shocked the market two weeks ago when it not only kept interest rates on hold, but its 9 members voted for this decision with a 7-2 split in favour of a hold. The market was anticipating this decision to be a much closer call and instead, this brought uncertainty as to whether a rate hike would happen at all before the end of the year. With this, Sterling tumbled versus many of its peers. Andrew Bailey, Governor of the Bank of England, maintained that employment data would be watched closely, and thus this latest data release brings the market and the pound confidence that a rate hike is probable.

Key Movers

US retail sales posted a stronger than expected result yesterday, attested to the American population attempting to get their holiday shopping done early to avoid missing out with shortages of some goods. Retails sales jumped 1.7% last month after rising by only 0.8% in September, and this was its largest gain since March this year. It was the third straight monthly advance and even beat economists’ forecasts of a 1.4% increase.

This has provided further positivity for the US dollar, which has been spurred on by last week's US inflation data showing that inflation was at a multi-year high. Speculation that the Federal Reserve's tapering of their asset purchase programme may not quite be enough to stem inflation, and that an interest rate hike maybe the only solution, has provided fuel to the US dollar, which is now at an 18 month high versus the Euro.

The euro has remained weak, breaking below the 1.13 handle against the US dollar overnight. The Eurozone economy is starting to show signs of cracking, and appears to be underperforming some of the leading global economies too. Coupled with this, the European Central Bank appear to not want to discuss tightening their monetary policy and are a step or two behind the Bank of England and Federal Reserve.

COVID-19 cases continue to rise in the eurozone, and further lockdowns are being contemplated by several different regions, whereas the US seem to have it at a relatively stable level for now. Unless there is a change, the euro could remain under pressure heading into the end of the year.

Expected Ranges

GBP/EUR: 1.1840 - 1.1925 ▲

GBP/USD: 1.3410 - 1.3495 ▲

EUR/USD: 1.1260 - 1.1340 ▼

GBP/AUD: 1.8310 - 1.8605 ▲