Sterling’s value could be in for a testing second half to the week as the latest figures from the UK’s jobs market continues to weigh on investor appetite. During yesterday’s trading, the Confederation of British Industry (CBI) released details from it’s quarterly report which made for particularly bleak reading and could dampen the pound’s prospects on the international stage in the medium to long term.

Indeed, the quarterly figures showed a drop from -20 in May to -45 in August, marking the biggest fall in employment since the peak of the 2009 crisis within the retail sector. These troubling figures follow on from a long list of major players across UK PLC who have been forced to reconsider their headcount. Ryanair has stripped another 20% of scheduled flights as demand for international travel continues to shrink. Marks & Spencer have confirmed around 7,000 jobs are to be cut. Debenhams and WHSmith have also hit the headlines in similar fashion.

CBI are suggesting these could all be seen as early indications for accelerated levels of widespread unemployment. Indeed, the retail sector has been particularly sensitive to the pandemic for obvious reasons. Should a similar trend continue to develop in other sectors, will we see another change in stance from the government and indeed the Bank of England? We saw a considerable drop in the number of furloughed employees between May and June (2m difference). It will be interesting to see if July and August follow a similar trend and indeed if this is alluded to in Andrew Haldane’s speech this afternoon (Chief economist at the Bank of England).

Shift in Consumer Trend to Benefit Sterling in the Short Term

Shift in Consumer Trend to Benefit Sterling in the Short Term

On the flipside there have been some slight reasons for optimism that have come to light this week and might be helping the pound hold it’s ground against it’s major currency counterparts.

Despite the heavy numbers of job losses within the retail sector since the start of the pandemic, we have started to see a shift in trend in consumer confidence and spending habits, something that will be well received by the Bank of England.

According to data from researchers at Springboard, footfall across the UK’s major retail destinations increased by 4% in the space of a week, with readings from central London as high as 12%. We did see added support for the pound when UK inflation picked up from May to June. Could we see a similar reaction if these figures are reflected in this month’s reading? It is worth noting that over 35m consumers are reported to have benefitted from the “eat out to help out” model put in place by the government, marking another potential driver for consumer spending and might benefit the pound further.

Sterling Continues to Hold Above 1.30 Against the US Dollar

Despite a number of positive data releases from the US the pound is still holding strong above the 1.31 mark (interbank) against the dollar, reflecting the perceived caution around the greenback at present.

Indeed, existing home sales jumped to record breaking highs in July and business confidence within the construction sector also rose to an all time high this month, the trend looks particularly positive given that Real estate has historically been used as a barometer for long term consumer confidence within an economy.

However, the dollar has been unable to build much momentum on the international stage with uncertainty from the elections potentially choking appetite and last week’s headlines still fresh in the minds of investors. As a result of the pandemic, the US reported the number of large US structures filing for bankruptcy has accelerated drastically. This trend is also reflected in the most recent business confidence readings. As a result, tomorrow’s data from the Jobs market might hold extra weight with the markets. Lower than expected readings here could draw further volatility to GBPUSD exchange rates.

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