GBP Awaits UK Jobs, EUR Regains $1.4

UK unemployment in focus after surprise inflation drop, Ireland downgraded by Moodys, Fed minutes showed policymakers remain uncertain about economic outlook, China slowdown fears ease, Japanese yen strength could prompt concerns about more intervention.

Yesterdays surprise fall in June inflation in the UK may well have come as a pleasant surprise to the Bank of England but it could well be only a temporary reprieve given the energy price rises in the pipeline. The fact remains that concerns about growth in Q2, as well as unemployment, continue to weigh in the central banks thinking and todays unemployment figures will be closely watched for any upward pressure in the jobless figures. Jobless claims are expected to have risen by 15k while the ILO measure is expected to have stayed constant at 7.7%.

Average earnings figures for the latest quarter will be closely scrutinised for any upward pressure on wages with expectations of an increase from 1.8% to 2.1%.

With the euro set to remain in the spotlight, yesterdays rebound from 4 month lows at 1.3840 was quickly knocked back by Moodys downgrade of Irelands sovereign debt to junk status with a negative outlook. With economic growth showing signs of slowing down euro zone industrial production for May is expected to have slipped back further from 5.3% in April to 4.8% in May.

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Last night's release of the latest minutes from the FOMC showed that policymakers remain divided on the best way to deal with the problems afflicting the US economy, with some favouring further easing and others leaning towards tightening. While the minutes did appear to outline an exit strategy for the recent stimulus program further clues about the US economy could come later today. This afternoons testimony by Ben Bernanke could give further clues as to the Feds thinking especially in light of last Fridays disappointing payrolls report. Expectations are that the chairman may well get a rough ride from the committee.

Chinas latest GDP numbers appear not to be as big a cause for concern as first thought in the face of recent tightening measures after Q2 GDP slipped back from 9.7% to 9.5%.

Industrial production and retail sales for June also showed no signs of slowing down, rising 17.7% and 15.1%, up from Mays 16.9% and 13.3% respectively. These figures, while above expectations show that growth remains robust, but do appear to raise some concerns that further tightening could well be on the way later this year, after last weeks rate rise.

Last nights yen volatility could raise concerns about further intervention given that it has started to gain both against the US dollar and on the crosses to levels last seen in March this year. SEE OUR USDJPY trade in the latest Intermarket Insight.