Sterling falls sharply in early European session after release of much worse than expected job report from UK. Data showed that employment situation in the UK deteriorated in February with claimant count surged +4.3%, higher than consensus of +4% and January's+3.8%. The number of people claiming for jobless benefit increased by 138.4K, compared with market expectation of 84.5K and a revised 93.5K in the previous month. ILO unemployment rate climbed at the fastest pace since 1971to +6.5%, in January from 6.3% a month ago. The number of job loss rose to 2.029M, a level not seen since 1997, in the three months to January. During the period, average earnings including bonuses soared by an annual 1.8%, the weakest since records began in 1991.
The Bank of England today released the minutes for March's meeting, showing the policymakers voted unanimously (9-0) to reduce interest rate by 50 bps to 0.5% on Mar 5. At the same time, the nine of them all voted for the QE program to spend the 75B pound in the coming 3 months on asset buying. The MPC viewed that private sector asset purchases under the Asset Purchase Facility should be financed using central bank reserves rather than Treasury Bills. In another occasion, the BOE Governor Mervyn King said that outlook for inflation will determine when they will reverse the asset purchase program and increase interest rate.
Technically, EUR/GBP's decisive break of 0.9317 resistance continues that rise from 0.8635 has resumed and should now be targeting 0.9518 resistance next,. As discussed in our technical outlook report, the whole correction from 0.9799 has completed with three waves down to 0.8635 and a retest of this high is anticipated in near term. GBP/USD's failure below 1.4304 resistance and today's break of 1.3912 is retaining the bearish outlook that fall from 1.4984 is still in progress. Intraday bias in GBP/USD is flipped back to the downside for 1.3654 support first and then a retest of 1.3503 low.
Retail sales in Switzerland rose +1.2% yoy in January following a 3.6% yoy increase in December as the nation's economy is facing deep recession. Swissy is lifted by the data and extends recovery against dollar and Euro.
Price actions in Japanese yen is mixed. More upside is still in favor in USD/JPY and EUR/JPY but GBP/JPY is showing some extra weakness. Bank of Japan left overnight lending rate unchanged at 0.1% earlier today. At the same time, BoJ boosted purchase of Japanese Government Bonds (JGBs) up from ¥1.4T to ¥1.8T per month. BoJ said in the statement that markets will remain under stress in the new fiscal year and continued provision of substantial liquidity is required to ensure stability in financial markets. BoJ has also announced yesterday it is setting up a ¥1T fund to give subordinated loans to banks. JGBs trade higher after the announcement pushing yield down slightly and should make it easier for the government to fund the planned deficits. But markets are increasingly worried that BoJ is running out of new ideas to revive the economy of Japan, which appears to be much more affected by the current financial crisis than other developed countries.
Looking ahead, in US session, main focus will be on any discussions and decisions on purchase of larger quantities of long-term Treasury securities and possibly expanding the Federal Reserve's purchase of mortgage-backed securities. US' CPI should have risen +3% mom and 0% yoy in February as driven by higher gasoline price As shown in the worse-than-expected PPI report yesterday, food price plunged sharply and energy prices did not rise as much as forecast . Excluding food and energy, core CPI is expected to have eased to +0.1% mom during the month from +0.2% in January. On yearly basis, the gauge should have gained +1.7%. Current account deficit should have narrowed to $137.1B in 4Q08 while real earnings in February probably slid -0.1%. Canada's wholesale sales likely plunged -2.7% mom in January following a -3.4% drop in the previous month.