The USD has strengthened today, pushing EURUSD below 1.01 and GBPUSD below 1.20, but gains seem to be fading ahead of today’s important US data.
Political problems in UK
Following many political resignations and a strong push from the cabinet, investors applauded Boris Johnson’s resignation as UK Prime Minister and leader of the UK Conservative Party.
The real issue at hand is whether Labour has the leverage to thwart the Tory transfer of power and compel an immediate election through a vote of no confidence in Parliament. Given Labour’s moderate policy stance compared to 2019, even this poses less of a risk to the (not particularly promising) economic future.
“The bigger question now is who the next prime minister will be. Traders will want to know if a new leader is likely to lend support to the idea of further tax hikes. On the other hand, a reduced tax environment may well be expansionary for the economy, but does pose the risk of inflation lingering for longer.” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said today.
UK real estate remains strong
Market players were also analyzing the most recent Halifax poll, which revealed that despite the cost-of-living issue, house prices climbed in June at their quickest monthly rate since early 2007.
In comparison to May, when they jumped 1.2%, prices grew by 1.8%. House prices increased by 13% year over year in June, compared to a 10.7% increase in May. The average house price increased to 294,845 GBP, setting a new record. Since late 2004, the yearly growth rate was at its greatest level.
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Halifax’s managing director, Russell Galley, said that the UK market has so far resisted all predictions of a recession.
“The supply-demand imbalance continues to be the reason house prices are rising so sharply,” he said. “Demand is still strong – though activity levels have slowed to be in line with pre-Covid averages – while the stock of available properties for sale remains extremely low.”
On the US dollar side, investors will be paying close attention to today’s US labor market data update as the Labor Department will be releasing nonfarm payroll data. As opposed to the 390,000 jobs added in May, market participants predict 265,000 new positions in June.
As of May, there were 151.7 million nonfarm payrolls, which is just 0.5% less than the 152.5 million pre-pandemic high reached in February 2020. Meanwhile, it is expected that the unemployment rate, which has stayed at the same level for three consecutive months at 3.6%, remained unchanged in June.