Raphael Sonabend, FX Analyst
A data heavy day yesterday saw releases from across the world. The day began with Sterling weakness as UK employment figures saw a generally disappointing result. Although the claimant count change saw another 30K decline, the average earnings index fell below expectations and the unemployment rate remained at 5.7%, despite being forecast to fall. Later in the day the UK annual budget was released but this had a limited effect on the markets. A release that tends to be highly political, this was especially important with the UK elections approaching; the pound was unaffected. In the evening the US Fed conference was as dovish as expected, downgrading short-term inflation and growth forecasts and warning of a strong dollar negatively impacting upon exports. The dollar fell against all counterparts but has since been recovering lost ground. Focus today will be on Eurozone targeted LTRO figures at 10:15, US unemployment claims at 12:30, US Philly Fed manufacturing index at 14:00 and finally the EU economic summit, which will take place throughout the day. A quieter day today should allow the markets a chance to stabilise after yesterday’s volatility.
GBP/EUR: Currently trading at 1.3910
- A day of high-impact data yesterday saw the euro post strong advances in the morning before the pound recovered lost ground in the afternoon. The UK’s employment figures saw a fall in the average earnings index 3m/y from 2.1% to 1.8% whilst unemployment rate remained at 5.7% and had been forecast to drop to 5.6%. A cent gain was made by the euro following this release.
- Today’s focus will turn from the UK to the Eurozone with the EU economic summit taking place today in Brussels and the targeted LTRO figures released this morning by the ECB. The summit will discuss a range of issues, including the situation in Greece and perhaps a clearer indication of the next stage for Greece will be seen.
GBP/USD: Currently trading at 1.4863
- The Fed meeting was as dovish as expected yesterday evening but clearly dovishness had not been priced into the markets. The dollar fell over four and a half cent following the release of the Fed projections and statement yesterday as the Fed warned of consistently low inflation lying ahead. Comparing the individual economic projections of the Fed to the last projections release, the majority of members now feel a rate hike towards 0.5% this year would be an appropriate pace, whist a majority previously agreed on a hike towards 1.0% this year as appropriate. Analysts are generally split over a June or September rate hike.
- Data due today includes unemployment claims and Philly fed manufacturing index out of the US. Whilst the manufacturing index is predicted to increase from 5.2 to 7.2, it could fall below expectations as recent manufacturing figures have been poor.
EUR/USD: Currently trading at 1.0678
- The very dovish tone at yesterday evening’s Fed meeting allowed the euro to benefit quite a lot, enabling the pairing to momentarily reach 1.1025. Fed chair Yellen expressed her concerns over weak US exports caused by a strong dollar, and consistently low inflation, leaving on a knife edge whether an interest rate hike will take place in June or September. The pairing has since corrected itself and has dipped back below the 1.07 mark.
- This morning sees the Long Term Refinancing Option figure from the Eurozone which states the amount of money that the ECB will loan to banks, we may see some volatility on the back of this. From the US later this afternoon we have both unemployment claims figures and the Philadelphia Fed Manufacturing Index released, with forecasts mixed we expect further uncertainty in this pair.
GBP/AUD: Currently trading at 1.9356
- Yesterday’s Sterling trends were witnessed in this pairing as the Aussie gained over a cent in the morning before the pound started to recover lost ground. Dovish tones from the Fed yesterday evening may have lent a hand to Aussie weakness.
- A quiet day today will focus on US data, Aussie strength may be possible as US figures are predicted to be strong. Potential for further Aussie weakness if Philly Fed manufacturing index falls below forecasts.
GBP/NZD: Currently trading at 2.0033
- After recent lost ground against the pound, the Kiwi recovered four cent as UK employment figures came out poor. Whilst the jobless rate remained stable, earnings growth fell below expectations and traders took a bearish stance as the gap between inflation and wage growth narrowed. Volatility was seen as the NZ GDP figures came in as expected at 0.8%, the pound soon stabilised the rate before advancing.
- A quieter day lies ahead and our focus will turn away from the UK and NZ and will instead settle on US data. With the manufacturing index set to increase, the NZD may see an opportunity to recapture lost ground.
GBP/CAD: Currently trading at 1.8815
- We witnessed a volatile day of trading yesterday, with the pound suffering considerable losses after average earnings registered a decline on the previous figure. A partial recovery was made in the afternoon when the Canadian Wholesale sales recorded the largest monthly decline since January 2009, decreasing by 3.1%.
- A relatively quiet calendar today means that this afternoon’s US unemployment claims data could give Sterling a boost if it increases as predicted.
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