Forex News
- Initial Jobless Claims increased to 215K vs. the previous week.
- Continuing Jobless Claims went up to 1.786M.
According to a report from the US Department of Labor (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance increased to 215K for the week ending May 23. The latest print came in above initial estimates and was higher than the previous week’s 210K (revised from 209K).
Additionally, the four-week moving average went up by 6.25K, bringing it to 209K from the revised average of the previous week (202.75K).
The report also indicated that Continuing Jobless Claims increased by 15K to 1.786M for the week ending May 16.
Market reaction
The Greenback trades with marginal gains amid steady uncertainty in the geopolitical landscape, with the US Dollar Index (DXY) navigating the 99.20 area in a context of widespread lack of direction in the risk complex.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Rabobank’s Senior FX Strategist Jane Foley highlights that the Pound has underperformed in G10 in May, linking weakness to UK political uncertainty following local elections and ongoing questions over Labour leadership. Foley expects GBP to retain a political risk premium, see EUR/GBP drifting higher towards 0.89 over 9–12 months, and anticipate further GBP/USD dips towards 1.33 as safe-haven Dollar demand persists.
UK politics keeps pressure on Pound
"Most commentators would agree that the poor performance of the pound in May can be linked to political uncertainty sparked by the local elections at the start of the month."
"This suggests that GBP may continue to carry a political penalty for some time."
"We maintain the view that EUR/GBP will edge towards the 0.89 level on a 9-to-12-month view."
"We continue to expect EUR/GBP to be biased higher medium-term which any honeymoon period following any Labour leadership challenge to be quickly overruled by debt issuance concerns."
"We see scope for further dips in cable back to the GBP/USD 1.33 level on a 1-month view with UK political concerns keeping this level in view for much of H2."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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