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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK national highways workers to strike; US jobs growth beats forecasts – business live

Oil United States Russia Recession European Union crude oil Economy Inflation NFP OPEC
Traffic on the A1/M motorway.
Traffic on the A1/M motorway. Photograph: Transport Picture Library/paul ridsdale/Alamy

The GMB union say that Monday’s strike by G4S cash workers is postponed after the company made an 11th hour pay offer.

Eamon O’Hearn, GMB National Officer, said:

“G4S Cash staff are low paid workers doing a dangerous job, transferring the cash so many of us rely on every day.

“They deserve decent pay in this cost of living crisis. They will now decide whether this offer is enough.”

With the dollar strengthening, the pound has dropped back to $1.22, away from the five-month high of $1.23 hit last night.

Updated

Full story: US adds 263,000 jobs in November as unemployment rate stays at 3.7%

The US added 263,000 jobs in November, the Labor Department announced on Friday, another strong month of jobs growth. The unemployment rate remained at 3.7%, close to a 50-year low.

Employers hired 284,000 new positions in October and 269,000 in September and the latest figures show hiring has remained resilient despite rising interest rates and the announcement of a series of layoffs at technology and real estate companies.

The jobs market has remained strong even as the Federal Reserve has imposed the biggest series of rate rises in decades in its fight to tame inflation. This week, Fed chair Jerome Powell indicated that the continuing strength of the jobs market – and rising wages – were likely to trigger more rate rises in the coming months.

The US had been expected to add 200,000 jobs in November. The latest jobs numbers – the last before the Fed meets to decide its next move later this month – will strengthen the central bank’s resolve to keep raising rates.

More UK strike news: Cash workers at security giant G4S have postponed plans to strike on Monday, which could have led to cash shortgages at banks and shops across the economy.

The strong November payrolls and above-trend wage rises confirm Fed has ‘more ground to cover’, reckons Nathaniel Casey, investment strategist at wealth manager Evelyn Partners:

Given today’s payrolls figure, the Fed will need to see more evidence of labour market softening before changing its monetary stance. For instance, NFPs are still running well above the post-Second World War monthly average of 123k. In Jay Powell’s speech on Wednesday at the Brookings Institution he signalled the US central bank will slow its pace of rate hikes next month but noted the Fed still has “more ground to cover” and interest rates are going to have to remain elevated for some time.

The latest October job openings (JOLTS) survey showed tentative signs of labour market softening with job openings edging down slightly to 10.3m versus 10.7m in September – but this is still well above pre-pandemic levels of 7.4m in December 2019. Although this suggests monetary tightening is starting to have an impact on labour demand, it is not enough for the Fed to ease off. At current levels there are 1.7 job openings for every 1 unemployed worker, and the job openings gap is at 4m, both of which imply the labour market is far tighter than the Fed would be comfortable with.

A surge in the rate of wage rises will be concerning for the Fed (and markets) with year-on-year average earnings for November at 5.1% up from October’s reading of 4.7% but lower than the March 2022 peak of 5.6%. However, these levels are still far too high to be consistent with 2% inflation over time.

Stock have opened lower on Wall Street, following the stronger-than-expected jobs report.

The Dow Jones industrial average is down 239 points, or 0.7%, at 34,159.89 points.

Charles Hepworth, investment director at GAM Investments, says:

“US November payrolls increased more than forecast, showing 263k additions versus expectations of 200k whilst the unemployment rate remains unchanged at 3.7%. So, markets should view this as evidence of a continuingly strong labour market which seemingly remains unaffected by higher rates. This can only pile more pressure on the Fed to maintain a hawkish stance on rate policy. Equities falling, dollar strengthening and treasury yields drifting higher would be the normal market reaction, and at the moment this is playing to script.

However no doubt by the end of the trading day, some may find reason in the report to shift the narrative.

Either way, Fed Chair Powell’s more dovish statement, as received by markets on Wednesday, cannot be seen as that dovish in reality – wage growth and new job creation points to a super-hot employment market and one on which the Fed wants to crack down with ever higher rate moves.”

Here’s a neat breakdown of the US jobs report:

Daniele Antonucci, Chief Economist and Macro Strategist at Quintet Private Bank, predicts the Fed could slow its interest rate rises, despite such strong wage growth last month.

Here’s Antonucci’s take on today’s jobs report:

US labour market slows but demand for jobs remains strong

That the US economy added more jobs than expected in November is a sign that demand for new workers remains relatively resilient despite policymakers’ push to slow economic growth and curb inflation. However, much is going on under the surface and we suspect these underlying changes will allow The Federal Reserve to slow the pace of rate hikes later this month.

Last week, Federal Reserve Chair Jerome Powell said that “the time for moderating the pace of rate increases may come as soon as December’s meeting”, providing the clearest sign yet that policymakers are ready to ease off the accelerator.

Some of his colleagues subsequently reminded markets that an end to the rate hiking cycle is not imminent, presumably to avoid any unwarranted easing in financial conditions.

A good US jobs report is bad for stocks:

Today’s jobs report is a blow to hopes of a ‘dovish pivot’ from the Fed:

ING say:

Strong job creation and a big increase in wages underscore the Federal Reserve’s argument that a lot more work needs to be done to get inflation under control.

It has certainly jolted the market.

But with recessionary fears lingering, market participants will remain sceptical over how long the strong performance can last.

There were notable job gains at US leisure and hospitality companies, and in health care and government, the Bureau for Labour Statistics reports.

Employment declined in retail trade and in transportation and warehousing.

US jobs report stronger than expected

This month’s US labour market report was stronger than expected -- both in terms of the headline figure and wage growth. That underscores the tightness of the labour market, which remains a bright spot in an otherwise weakening US economy.

Victoria Scholar, head of investment at Interactive Investor, says:

In terms of the Fed’s conundrum, this piece of data muddies the picture for a possible slowdown in rate hikes ahead, given that it suggests the employment market is slowing less than anticipated, adding to price pressures facing the economy.

US futures are trading sharply lower with the Nasdaq leading the losses. The US dollar has jumped while short-term interest rate futures have dropped on anticipation that the Fed may not have as much wiggle room to shift towards a more dovish approach to rate hikes in terms of its combat against inflation.

Ahead of the report the US dollar was trading modestly lower. However, the jobs report has bolstered risk-off sentiment with the greenback swinging into the green against most major currencies. US dollar strength is weighing on precious metals with gold, platinum and palladium trading sharply lower.”

Average US hourly earnings up 0.6%

The US unemployment rate held at 3.7% while month-on-month average hourly earnings grew by 0.6% month-on-month, which beats expectations for 0.3% growth..

Updated

US economy adds 263k jobs in November

Just in: America added more new jobs than expected last month, despite signs that the economy was slowing from higher interest rates.

The Non-Farm Payroll rose by 263,000 in November, beating forecasts of around 200,000 new hires.

October’s payroll has been revised up too, to show 284,000 new jobs were created, not the 261,000 first reported. September’s total has been revised down by 46,000.

This news is driving up the dollar, and hitting Wall Street futures, as it cuts the chances of the US Federal Reserve slowing its interest rate rises soon.

Updated

Roads ‘could come to a standstill’ as national highways workers go on strike

The view across Newham Way road and Beckton to the city of London, England, United Kingdom, UK

Union members working on England’s roads have announced 12 days of strike action over Christmas and the new year, PA Media report.

Members of the Public and Commercial Services union (PCS) at National Highways, who plan, design, build, operate and maintain the country’s roads, will take part in a series of staggered strikes from December 16 to January 7.

The union said the action risks bringing roads to a standstill.

The action will coincide with planned strikes by RMT members on the railways.

PCS general secretary Mark Serwotka said:

“We know our members’ action could inconvenience travellers who plan to visit their relatives over the festive period, but our members have been placed in this situation by a government that won’t listen to its own workforce.

“With the serious cost-of-living crisis, they deserve to be paid properly for the important work they do, keeping our roads running safe and free.

“The Government is in the driving seat here - it’s in a position to stop these strikes by putting money on the table.”

PCS will be announcing strike dates in other departments, including the Home Office, over the next few weeks.

Laura Joseph, Post Office Customer Experience Director says:

Royal Mail have now brought forward the last recommended posting dates for many of their services including 1st and 2nd class parcels – pop into your local Post Office branch to find out more.

“12th December is now likely to be even busier in Post Office branches as customers race to take advantage of the cheaper postage as this is now the last recommended date for sending 2nd class parcels to arrive for Christmas. As soon as you’ve got your parcels ready to go, don’t wait to come into branch and get them in the post - many Post Office branches are open long hours and some are open 7 days a week so pop into your local branch and get your gifts sent in time for Christmas”

Royal Mail are warning customers to expect disruption to deliveries and its services, due to strikes by members of the Communication Workers Union.

It says:

Items posted in the run up, during and after strike days are likely to be subject to delay. We’re sorry for any inconvenience this will cause.

On Tuesday the CWU warned there could be a “Christmas meltdown” in letters and deliveries, blaming Royal Mail’s management for refusing to enter negotiations that would avert strikes.

Investors look towards US jobs report

Financial markets are bracing for November’s US jobs report to be released, in around 40 minutes time (8.30am east coast time, or 1.30pm in the UK).

The Non-Farm Payroll is expected to show around 200,000 new jobs were created across the US last month, down from 261k in October.

A soft report could encourage the Federal Reserve to slow the pace of its interest rate rises.

Craig Erlam, senior market analyst at OANDA, explains:

Jerome Powell’s comments on Wednesday made clear the direction of travel that Fed policymakers are keen to undertake but ultimately, the data must allow for it. So far, that has very much happened with inflation falling more than anticipated in October, the manufacturing sector softening, supply chains improving and labour market performing less well.

Today’s jobs report will offer further insight into whether this last point continues to be the case. Jobs growth around 200,000 would continue the trend since earlier this year and, alongside rising jobless claims, point to a cooling in the labour market.

But it’s the wages that the Fed cares most about. A moderation in earnings growth is essential to get policymakers on board and perhaps even bring down the terminal rate over the coming months. It’s not just about putting inflation on a better trajectory, it’s about ensuring it can return to target on a sustainable basis and that requires earnings to rise at a more modest rate to ensure inflation doesn’t become entrenched.

Updated

A $200m (£163m) superyacht owned by Viktor Medvedchuk, an oligarch and friend of Vladimir Putin who is under sanctions, is to be sold at auction after its seizure in Croatia earlier this year.

The Ukrainian government said a Croatian court had ruled that Medvedchuk’s 92.5-metre Royal Romance yacht should be transferred to the Ukrainian Asset Recovery and Management Agency (Arma), which said it would “preserve the economic value by selling it at auction”.

It would be first such sale on behalf of the people of Ukraine since western governments imposed restrictions on the assets of hundreds of oligarchs after Russia’s invasion of Ukraine in February.

Back in the markets, the pound is set for a fourth straight week of gains.

Sterling is up 0.2% against the US dollar today at $1.2277, having hit $1.23 for the first time since June last night.

It’s set for a weekly gain of over 1.5%, although that could change when November’s US jobs report hits the wires in 90 minutes.

Full story: Royal Mail should stop blaming Covid for delivery failures, says Ofcom

Royal Mail cannot keep blaming the coronavirus pandemic for failing to make deliveries on time as its performance is falling “well short of where it should be”, the postal regulator has said.

Soaring rents making life ‘unaffordable’ for private UK tenants, research shows

Soaring rents have in effect made life unaffordable for private tenants across swathes of the UK, according to research undertaken for the Guardian.

The analysis shows that asking rents on new listings are up by almost a third since 2019, and some people are facing increases of up to 60%. Prices in 48 council areas are now classed by the Office for National Statistics as unaffordable when compared with average wages.

It comes amid warnings of a rising wave of evictions, allegations of “price gouging” by some landlords, and fears that the rental crisis is fast becoming a homelessness emergency.

Tenants in London and Manchester are planning protests this weekend to demand that the government freezes rents as an emergency measure.

Here’s the full story:

Irish GDP rises 2.3%, but domestic economy shrank

Gross Domestic Product (GDP) in Ireland grew by 2.3% in the third quarter of the year, data just released by the Central Statistics Office shows.

But, Ireland’s gross national product (GNP) - which strips out the profits made by multinationals - fell by 2.2% in the quarter.

The CSO reports that:

  • Modified Domestic Demand, a broad measure of underlying domestic activity that covers personal, government, and investment spending, declined by 1.1% in Q3 2022

  • Exports grew by 4.8% in Q3 2022 while Imports rose by 27.0% leading to a significant decline in overall Net Exports of 40.9% (-21.4bn)

  • Personal spending on goods and services, a key measure of domestic economic activity, increased by 0.3% in the quarter

Updated

German exports fall more than expected as demand cools in Europe and US

German exports fell more than forecast in October as the global economy slowed.

Exports declined by 0.6% on the month, twice as much as analysts had expected, data from the Federal Statistics Office shows.

Exports to other EU countries fell by 2.4%, while shipments to the US were down 3.9%.

However, Germany’s trade surplus actually increased, due to a 3.7% drop in the value of imports (due to falling commodity prices such as cheaper energy).

Not only German consumers, but also the export industry is facing more difficult times,” said DekaBank economist Andreas Scheurle.

“The German export engine is noticeably juddering,” said German chambers of commerce and industry (DIHK) trade chief Volker Trier, adding:

“High inflation rates and a tight monetary policy in important sales markets are dampening international demand.”

Heathrow passengers face 'Christmas getaway misery' as ground handlers strike over pay

Heathrow passengers have been warned to expect Christmas getaway misery as ground handling staff employed by Menzies workers strike over pay

350 workers employed by Menzies will take strike action from 04:00 on Friday 16 December for a 72 hour period.

The dispute could cause disruption, delays and cancellations for flights leaving Heathrow Terminals 2, 3 and 4.

The strike action will particularly affect Air Canada, American Airlines, Lufthansa, Swiss Air, Air Portugal, Austrian airlines, Qantas, Egypt Air, Aer Lingus and Finnair.

Menzies is accused of treating ground handlers unfairly compared to other Heathrow workers, according to the Unite union.

Unite’s general secretary Sharon Graham said:

“Menzies needs to have a long hard look at itself. This is a highly lucrative company, which has made a fair pay offer to one group of its workers but isn’t prepared to make a similar offer to its ground handlers.

“Unite is entirely dedicated to defending its members jobs, pay and conditions. Our members at Menzies will continue to receive the union’s complete support.”

Royal Mail says its focus remains “to restore our service to the high standards our customers expect to receive.”

Ofcom warns Royal Mail over poor performance

Communications regulator Ofcom has warned Royal Mail that it cannot continue to blame the Covid-19 pandemic for its poor delivery performance.

Following an investigation into Royal Mail’s 2021-22 delivery performance, Ofcom says it is concerned that the postal service’s performance in the early part of 2022-23 fell well short of where it should be.

Royal Mail failed to hit several key targets in the year from April 2021 to March 2022:

  • 82% of First Class mail delivered within one working day of collection, below the target of 93%;

  • 95.6% of Second Class mail delivered within three working days of collection, against the target of 98.5%; and

  • completing 94.29% of delivery routes on each day that a delivery is required, against the target of 99.9%.

The pandemic led to staff shortages at Royal Mail, as postal workers were ill or isolating. It also led to a rise in parcel deliveries, as people turned to home shopping.

Ofcom says that without the impacts of Covid-19, Royal Mail’s performance levels would have been significantly higher, and it might have met its targets.

As such, it has decided not find Royal Mail in breach of its regulatory obligations for 2021-22.

But, Ofcom doesn’t expect Covid-19 to have a “continuing, significant impact” on Royal Mail’s service levels.

The regulator says:

Social distancing measures are no longer in place, absence levels are likely to be much less unpredictable, and parcel volumes have largely returned to pre-pandemic trends.

We are concerned by the fact that Royal Mail’s performance in the early part of 2022-23 fell well short of where it should be. We believe the company has had plenty of time to learn lessons from the pandemic, and we are unlikely to consider the factors outlined above as exceptional and beyond its control in future.

The UK’s financial regulator has warned insurers not to undervalue cars and other property when making payouts to customers.

The Financial Conduct Authority says it has seen evidence that some consumers who have had their cars written off after an accident are being offered a price lower than the vehicle’s fair market value, and only improving the offer when customers complain.

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, says the regulator is watching firms ‘closely’ to see if they’re playing fair:

‘When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car or other goods that they need to replace.

‘Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.

‘We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.’

The pound’s recovery over the last two months should help to cool the cost of living crisis, as it will make imported goods less expensive.

Simon French of Panmure Gordon explains:

World food price prices dropped in November

World food prices dipped again last month, thanks to a drop in the cost of cereals, dairy and meat.

The UN’s FAO Food Price Index slipped to 135.7 points in November, slightly lower than October’s 135.9 – the eighth monthly fall from March’s record high.

Food commodity prices are now only 0.3% above their levels in November 2021, before the Ukraine invasion drove up wheat prices, the UN’s Food and Agriculture Organisation (FAO) reports.

The UN food index, to November 2022

World wheat prices fell by 2.8% in November, mostly driven by Russia rejoining the “Black Sea Grain Initiative” which allows Ukraine to export wheat by sea.

Skimmed milk prices also fell last month. The UN’s FAO says:

Whole milk powder prices dropped substantially, principally due to lower buying interest from China, only partially compensated by higher purchases by Southeast Asian countries.

Prices for vegetable oils and sugar rose during November, though.

Sugar prices were lifted by “strong buying amid prevailing tight global sugar supplies due to harvest delays” in sugar-producers, and by India setting a lower sugar export quota, which tightened global supplies.

Updated

The Burlington Arcade in Piccadilly.
The Burlington Arcade in Piccadilly. Photograph: Ian Shaw/Alamy

Footfall at UK shops stumbled again in November as the soaring cost-of-living crisis put consumers off Christmas spending.

Total UK footfall was 13.3% below pre-pandemic levels last month and 1.5 percentage points worse than October, according to BRC-Sensormatic IQ data.

High street footfall was down 13.6% on November 2019, two percentage points worse than last month’s rate and worse than the three-month average decline of 12.3%.

Retail parks saw a relatively shallow decline of 4.2% but shopping centres saw 23.2% fewer visits than November 2019.

Strikes on the railways, and the lure of watching football at home, may also have deterred shoppers. British Retail Consortium chief executive Helen Dickinson says:

“Footfall took another stumble as the cost-of-living crisis put off some consumers from visiting the shops in November. Others opted to stay home due to the scattering of rail strikes or chose the World Cup over shopping visits.

“Many big cities were particularly hard hit, with Birmingham, Bristol and Manchester all seeing the biggest drops in footfall since January.

Rising inflation and low consumer confidence continue to dampen spending expectations in the run up to Christmas. Despite retailers doing their best to keep prices as low as possible for their customers, financial concerns are trumping spending for many households.

But, with three more weeks to Christmas, retailers hope that the festive spirit may still give a welcome boost to both footfall and retail sales.”

John Lewis agrees £500m deal with Abrdn to build 1,000 rental homes

British retailer the John Lewis Partnership is to turn some of its stores and a vacant warehouse into homes via a £500 million pound joint venture with investment company abrdn.

The group intends to redevelop Waitrose shops in Bromley and West Ealing, and a vacant John Lewis warehouse in Reading, as the first part of a plan to build a total of 10,000 new homes over the next decade.

Here’s the story:

Shares in oil producers are falling this morning, pulling the UK’s blue-chip share index down from Thursday’s five-month high.

BP (-3%), Harbour Energy (-2.6%) and Shell (-2%) are the top FTSE 100 fallers, knocking the ‘Footsie’ down by 0.5% or 37 points to 7521 points.

European markets are also a little lower, ahead of the US non-farm payroll due at 1.30pm UK time:

Neil Wilson of Markets.com says:

European stocks opened lower on Friday, looking to close the week out barely changed but with US jobs data on tap later likely to drive some volatility. The FTSE 100 dropped around half a percent in early trade, holding above 7,500, the DAX off a similar margin but above 14,400.

US nonfarm payrolls are due up later. Forecast is for +200k jobs, slowing from +261K last month. Wage growth is seen at +0.3% and unemployment rate steady at 3.7%. I don’t think the pace of jobs growth will matter too much for the Fed’s December meeting, but it will offer the usual volatility.

Weaker-than-expected can be seen near-term positive for risk...but I think as we head into 2023 it will be clear that bad news is no longer good news for stocks.

Russia oil cap: What the analysts say

Stephen Innes, managing partner at SPI Asset Management

The European Union tentatively agreed, subject to Poland, to set the price cap on Russian crude oil at $60 per barrel, an EU diplomat told Reuters on Thursday. Since the price cap is lower than what has previously been bandied around, it raises the spectre of some form of Russian supply retaliation which should lend support for oil prices.

However, oil prices retreated off the highs as the weaker US dollar-inspired oil rally gave way to reasons why the dollar is weakening. Specifically, weaker US economic data tempered the rally as the remarkably resilient US jobs market showed signs of cooling. Indeed, the one glaring problem the oil market faces is the anticipated run of weaker US economic data, which is the price to pay for aggressively fighting inflation.

Still, the incremental steps to living with Covid in China should continue to put more lofty floors under prices.

Victoria Scholar, head of investment at interactive investor

“The European Union reportedly has cautiously agreed to a $60 price cap on Russian oil with plans to adjust the cap so that it remains at 5% below the oil price. The next step is for the proposals to be approved by all EU governments.

This week oil has been staging gains amid optimism towards the potential loosening of covid restrictions in China and the opening up of its economy at last, which could potentially unleash demand for crude oil from the world’s second largest economy.

Meanwhile oil prices are trading modestly lower ahead of the OPEC+ meeting on Sunday. Analysts are divided on what the cartel will decide to do on 4th December. At its October meeting, OPEC+ cut its daily oil production by 2 million barrels per day to try to boost prices. A recent media report that the cartel was considering hiking production was quickly refuted by Saudi Arabia. Given this week’s rally, perhaps the cartel will hold off from doing anything at all until China’s demand trajectory becomes clearer.

After a surge in oil prices in the first quarter following Russia’s invasion of Ukraine, Brent crude has been slowly pushing lower since March. However, this week has finally brought about some more bullishness.”

AP: EU edges closer to $60-per-barrel Russian oil price cap

The European Union is edging closer to setting a $60-per-barrel price cap on Russian oil — a highly anticipated and complex political and economic maneuver designed to keep Russia’s supplies flowing into global markets while clamping down on President Vladimir Putin’s ability to fund his war in Ukraine — reports Associated Press.

AP explains:

EU nations sought to push the cap across the finish line after Poland held out to get as low a figure as possible, diplomats said Thursday. “Still waiting for white smoke from Warsaw,” said an EU diplomat, who spoke on condition of anonymity because the talks were still ongoing.

The latest offer, confirmed by 3 EU diplomats, comes ahead of a deadline to set the price for discounted oil by Monday, when a European embargo on seaborne Russian crude and a ban on shipping insurance for those supplies take effect. The diplomats also spoke on condition of anonymity because the legal process was still not completed.

EU tentatively agrees $60 price cap on Russian seaborne oil

The European Union is closing in on a deal to cap the price of Russian crude oil at $60 a barrel, as leaders try to clinch an agreement before Monday’s deadline.

EU governments tentatively agreed on Thursday on a $60 a barrel price cap on Russian seaborne oil - an idea of the Group of Seven (G7) nations - with an adjustment mechanism to keep the cap at 5% below the market price, according to diplomats and a document seen by Reuters.

Reuters explains:

The agreement still needs approval from all EU governments in a written procedure by Friday. Poland, which had pushed for the cap to be as low as possible, had as of Thursday evening not confirmed if it would support the deal, an EU diplomat said.

EU countries have wrangled for days over the details of the price cap, which aims to slash Russia’s income from selling oil, while preventing a spike in global oil prices after an EU embargo on Russian crude takes effect on Dec. 5.

It will allow countries to continue importing Russian crude oil using Western insurance and maritime services as long as they do not pay more per barrel than the agreed limit.

Europe will begin enforcing an embargo on Russian crude shipments from Monday, so the price cap would apply to oil exported by sea by Moscow to ports around the world.

As we reported yesterday, there had been fraught negotiations over where to set the cap. Estonia came under pressure to abandon its threat to veto the cap, which it feared would be set too high to hurt the Russian war machine.

Introduction: Pound touches highest since June

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

The pound has hit its highest level since late June, despite concerns about the UK economy, and political instability in Westminster.

Sterling hit $1.23 against the US dollar on Thursday, having bounced back from its record low of around $1.03 set two months ago.

The pound/US dollar exchange rate
The pound/US dollar exchange rate Photograph: Refinitiv

During November, the pound climbed from $1.1469 to around $1.23, as international investors took an improved view of the UK economy after chancellor Jeremy Hunt ripped up the mini-budget.

The other side of the coin, though, is that the dollar has weakened as traders anticipate a slowdown in US interest rate hikes:

James Athey, investment director at abrdn, explains:

“Sterling has been one of the biggest beneficiaries of the market’s latest attempt to price an immaculate pivot from the Fed – growth and inflation soft enough to allow an easier Fed, but not so soft that it’s evidence of real economic stress. This has seen yields coming down and the Greenback giving back some of the significant gains for the year. Risk assets have reacted with typical, if ill-advised, gusto and so risk facing currencies like pound sterling have rallied strongly.

“Of course, domestic factors have played a part, as a semblance of institutional credibility has returned to the shores of Blighty via a renewed conservatism among the Conservative Party and finally a long-overdue 75bp hike from the Bank of England.

But…. Athey warns that the pound could weaken against the US dollar, as the economic outlook deteriorates:

The reality is that a recession is coming, and a Fed rescue is coming less quickly than in recent years. We see that reality as a coming cold shower for buoyant risk markets and as ever we expect the dollar to benefit from the resultant flight to quality.

With the UK economic outlook being even worse, this portends an unhappy combination for sterling.

The pound is still weaker than before the pandemic began (when it traded at $1.30), and before the 2016 EU referendum (when it was worth around $1.50).

Also coming up today

It’s Non-Farm Payroll day, when investors around the world learn how America’s jobs market fared last month.

Economists predict that job creation slowed in November, as rising interest rates cooled the labor market. The NFP is expected to have risen by around 200,000, down from 261,000 in October.

A weak payroll report could spur the US Federal Reserve to slow its interest rate rises, as Matthew Weller of Forex.com explains:

Friday brings the final jobs report before the FOMC’s highly-anticipated December meeting, where the central bank will decide between a fifth consecutive 75bps rate hike and a slight slowdown to a 50bps rate hike.

According to the CME’s FedWatch tool, traders are currently pricing in a 1-in-3 chance of another 75bps rate hike, with an implied two-thirds probability of a downshift to 50bps. That said, a particularly strong or weak jobs report, especially if confirmed by the inflation data (PPI and CPI) in the first half of December, could still prompt the Fed to change its path, so expect some market volatility around the release regardless.

The agenda

  • 7am GMT: German trade balance for October

  • 10am GMT: Eurozone PPI index of producer price inflation for October

  • 11am GMT: Ireland’s Q3 GDP report

  • 1.30pm GMT: US Non-Farm Payroll jobs report

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