Non-farm payrolls released on Friday created a mixed impression about the state of the US labor market: demand for labor force grew significantly, which led to an increase in the number of new job openings by 304K in January (the biggest jump in almost a year), while the number of layoffs increased too, especially temporary, which left their footprints in the trend of jobless rate. The number of unemployed for the period surveyed increased to 6.5 million in January, or 4.0%.

In part, the unemployment was affected by the shutdown of federal government. Civil servants who were sent on unpaid leave at the time of the survey were temporarily out of work, but were included in the number of employed persons, because, albeit with a delay, they will receive a salary for the days of government holidays. It’s a bit more complicated with federal contractors, with whom the government has no hard-binding obligations: employees of the firm-contractors who lost their job were counted as unemployed. In general, the government shutdown as a factor affecting employment was worthy of mention in the BLS report. Therefore, with the government back into work we can observer positive impulse in employment in February.

Wages grew by only 0.1%, which is far from the market’s expectations and the Fed (0.3%), so the Fed’s balance of expectations may start to shift towards caution. However, only persistence of weakness in wages will be able to verify the assumption; accordingly, the pressure on the dollar after the data was very transient.

Meanwhile, the dollar has completely reverted the drop after the Fed statement in January:

The probability that the Fed will leave interest rate in the current range of 225-250 this year fell from 97% to 91% on Tuesday. Talking about reassessment may be still premature, but realization of this outcome could be very rewarding. You can read more about this here or here.

Consumer spending in the UK went on the mend in January after a season of modest spending in November and December. The rise in savings rate may be also promoted by the uncertainty associated with Brexit.

According to KPMG, retail sales increased by 2.2% last month, after lackluster December, the weakest for 10 years. Barclaycard figures also showed that card spending rose by 2.9%. According to the company report, buyers made holiday purchases in advance in November to take advantage of discounts. Sacrificing Christmas traditions to the desire of saving by conservative Britons speaks either of a drop in the income or greater risk aversion associated with leaving Britain from the EU. The second option is more likely, since the incomes of the British are growing at a pace higher than inflation:

In January, discounts continued to stimulate sales, but it is unclear whether the momentum will last without price support. The Barclaycard report showed that consumers are worried about rising prices and the purchasing power of money, so they changed their consumption profile so that it now characterizes the financial stress of the British. In particular, expenses in supermarkets have increased at the highest rates since April 2017, when there was a peak of the negative mood associated with Brexit.

The pound is defending the level of 1.30 while being caught in bearish trend for about a week. The local highest point was reached on January 27 at 1.32, the rally was ensured by the news indicating support and strengthening of May’s control over the government. There is only about two months left until the UK’s deadline for leaving the EU, and it is clear that the pressure on the pound will grow due to the lack of news indicating progress. A potential surprise that will allow the pound to advance will be the postponement of the Brexit deadline. In the short term, GBPUSD short position looks reasonable, after retracement from 1.30. The soft comments of Bank of England boss Mark Carney this week increase the likelihood of such a scenario, as the Bank is likely to make a classic move, preferring to take a defensive stance in the absence of political certainty.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

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