Pound Battered By Massive Loss of Jobs

Last updated 3/18/2009 6:53 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• US slaps clawback provsions on AIG bonus contracts
• UK Unemployment exceeds 2 Million
• BOE Minutes show 9-0 vote. IMF says UK recession will last until 2010
• Equities slightly higher n Asia and Europe
• Oil at $48/bbl as $50 comes within target
• Gold quiet at $911/oz

Overnight Eco

• JPY BoJ Rate Decison remains at 10bp
• CHF Retail Sales 1.2%
• GBP Claimant Count Change 138.4K vs. 84.5K forecast
• GBP MPC Meeting Minutes 9-0 as expected
• GBP Average Earnings Index 1.8% vs 3,0%.
• GBP Unemployment Rate 4.3% vs. 4.0% eyed

Event Risk on Tap

• CAD Wholesale Sales
• USD CPI expected at 0.3%
• USD Current Account expected at -137.0B
• USD Fed Rate Decision

Price Action

• USD/JPY makes a run for 9900 as risk appetite remains
• AUD/USD pivots arounf 6600 for the seciond day in a row
• GBP/USD breaks below 1.3900 as woeful labor data weighs
• EUR/USD 1.3000 holds as traders eye FOMC

The pound lost more than 200 points  by early London trade after the currency came under assault on multiple fronts as the economic fundamentals of the UK economy deteriorated further, UK jobless rolls swelled by 138.4K versus expectations of 84.5K as the overall unemployment number crossed the critical 2 Million mark. The claimant count rate increased by 4.3% versus 4.0% forecast while average earnings including bonus dropped from 3.2% the month prior to 1.8% in January. Additionally the unit was hurt  by an earlier report from IMF that suggested UK recession could last well into 2010.  

As we noted in our earlier analysis of the data, “Overall the news was universally gloomy for the UK economy indicating that after a slight pause, the recession is likely to worsen as the steep increase in unemployment will undermine consumer demand for the foreseeable future. According to , Trades Union Congress- the broad union representative body in UK - each UK job is “chased by 10 people”. A year earlier that ratio stood only at 4 showing the rapid rate of deterioration in the UK labor market.”

Cable now finds itself trapped below the 1.4000 handle and is likely to remain there unless today’s FOMC announcement causes a massive outflow from the dollar.  On the other hand should the greenback strengthen, the pound could once again revisit the yearly lows at the 1.3500 level. Tonight’s dour labor data destroys any cable bull arguments of a near term recovery in the UK economy and could foreshadow much deeper contraction in the country’s GDP as the year progresses.

Meanwhile the euro remained comfortably above the 1.3000 level into the midday European trade as it broke above 1.3050.  Currency traders are eyeing today’s FOMC meeting at 19:15 GMT and although our opinion is that the Fed will not alter its message from the last communiqué, any direct mention of quantitative easing could spur further bouts of dollar weakness, especially if the market perceives the policy shift as a long term commitment by the Fed to absorb Treasury paper. Should that be the case EUR/USD could easily head to 1.3100 and higher as traders will view such a move as highly dilutive to the currency.

 Eye on FOMC

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.