Current Economic Situation
The UK Office for National Statistics has reported a rise in unemployment to 4.7% in the three months to May, which is the highest since June 2021. This increase is attributed to economic uncertainty, global pressures, and high interest rates. The UK economy contracted in April and May, leading to worsening labour market conditions. This is evident in the fall of payroll numbers by 41,000 in June, a drop in job vacancies by 56,000 to 727,000, and a easing of wage growth to 5%. According to Liz McKeown of the ONS, there is a continued softening of the labour market, although revised tax data suggests that the decline may be less severe than initially reported. The Bank of England may consider implementing larger interest rate cuts if employment conditions continue to deteriorate.
Recent Developments in the US
President Trump recently discussed the possibility of firing Federal Reserve Chair Jerome Powell during a meeting with House Republicans at the Oval Office. Although Trump stated that it is "highly unlikely" he will take such action, he did confirm that he raised the issue and noted that most lawmakers supported the idea. Trump’s criticism of Powell stems from the Fed’s decision to maintain high interest rates to combat inflation and Powell’s management of a Fed office renovation. This is not the first time Trump has publicly criticized Powell, despite having appointed him to the role.
Understanding the Federal Reserve
The Federal Reserve, which is the U.S. central bank, consists of 12 regional banks and a Board of Governors. Its primary functions include regulating banks, acting as a lender of last resort, and managing payments. A key role of the Fed is setting monetary policy through the Federal Open Market Committee, which includes Chair Powell and operates independently of politicians. The Fed has a "dual mandate" that aims to maximize employment and keep inflation low. However, these goals often conflict: lowering interest rates can boost growth but increase inflation, while raising rates can reduce inflation but slow the economy.
Expected Currency Ranges
The following are the expected ranges for major currency pairs:
- GBP/USD: 1.3379 – 1.3464 ↑
- GBP/EUR: 1.1503 – 1.1545 ↑
- EUR/USD: 1.1654 – 1.1698 ↑
Important Notice
This communication is intended for informational purposes only and does not constitute substantive research. The information contained herein does not take into account the financial situation or objectives of any particular person and should not be construed as business or investment advice or investment recommendations. Recipients of this communication should exercise independent judgment and obtain advice from their legal, tax, or financial advisors.
Conclusion
The current economic situation, both in the UK and the US, is marked by uncertainties and challenges. The rise in unemployment in the UK and the discussions around the Federal Reserve’s leadership in the US highlight the complexities of economic policy-making. Understanding these developments and their implications for currency markets is crucial for making informed decisions. As the economic landscape continues to evolve, it is essential to stay informed and seek advice from professionals when needed.
