Unemployment in the US and UK dwindled and economic condition seems like getting better. UK unemployment rate dwindled to the lowest level since January 2009. As well, US unemployment retained at under 7% since the beginning of the year. But GBP and USD bullish movements is in precarious position.

UK unemployment rate dwindled to the lowest level since January 2009. As well, US unemployment retained at under 7% since the beginning of the year. These facts indicate that central bank policies have managed to revive economy in respective countries from post-Subprime Mortgage crisis recession.
unemployment


UK Old Engines Need Fuels, Not Interest

Nowadays, UK outperforms other advanced countries on economic front, as shown by its periodical data reports. 2013 GDP grew to the highest level since mid-2008. Unemployment fell below 6.9%, passed beyond the 7% benchmark ruled by the central bank, BoE. Even better, average wages growth at last surpassed inflation, which means UK employees for the first time enjoy real wage increases. The fundamentals succeeded in supporting GBP against USD to the 1.6800 range. But, could it go higher?

We would like to remind you that at its core, UK economy is not as strong as its statistics want you to believe. There are improvements in the job market and GDP, but external and real sector are a different matter. Trade deficit is still high at 2058 million GBP, a sure sign that exports are still far behind imports. UK PMI Index continue to edge lower, although it is still above 50.0. UK is not in contraction area yet, but a policy mistake could bring it there. UK businesses needs fuels to fire its engines, and that is not higher borrowing rates. This could be why BoE seems reluctant to raise interest rate although the benchmark unemployment rate 7% have successfully breached.

Among other advanced central banks, BoE is the one most likely to hike rates soon, but so long as it doesn't happen yet, GBP rally will meet some resistances. David Rodriguez from DailyFX (19/4) mentioned that GBP is already at risk because traders' position has stretched and gains are slowing. Furthermore, he suggested to observe the release of BoE MPC minutes as it could be an important point for a big move. The minutes is scheduled to be published tomorrow.


US Okayed Tapering, But Not Rate Hike

Interest rates in US were rumored to go up too. In the beginning, it was said that the hike will occur around the end of the first half of 2015, as soon as gradual tapering ends. For a short time, USD successfully win the market along with investors hope for the Fed tighter monetary regime.

But the Fed and its governor, Janet Yellen, promptly changed tone. Tapering most assuredly will go on as planned, but benchmark interest rate hike went farther from sight.

In Economic Club of New York meets last week, Yellen said that she hopes for America's long-term unemployed to get back in the job market and solidify wages and inflation. There are also insinuation that short-term unemployment is less relevant as indication of rising prices and wages. The problem is, even with relatively low unemployment rate, there are still 3.7 million people out of job for six months or more. In the current economy, Yellen predicts that it will need a minimum of two years for the economy to reach Fed's objectives. In turn, she suggested for investors to observe developments of economic data to surmise when rate hike will occur.

If you are a specialist of major pair, take note of Yellen's suggestion and don't be swayed by spontaneous reactions in the market. Although many have predicted USD to end higher by the end of 2014, but reality beg to differ. All eyes are on the next US data releases.

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