Raphael Sonabend, FX Analyst
Yesterday’s session began with strong gains across the board from UK data, as employment figures beat all predictions. The average earnings index rose from 1.8% to 2.1%, well above the predicted 1.7%, whilst the unemployment rate fell from 5.8% to 5.7%. As wage growth continues to outpace inflation, confidence in the economy improves as consumers have more spending money in their pockets. Surprisingly dovish Fed minutes yesterday as officials expressed concern on the dollar’s increasing value, saying that it is “a persistent source of restraint” on exports; the dollar fell against all counterparts as a result. Focus today will be on ECB minutes at 12:30, the first time the bank has ever released minutes of a policy meeting, before turning to the US Philly Fed manufacturing index at 15:00.
GBP/EUR: Currently trading at 1.3510
- Surprisingly strong figures from UK employment saw this rate shoot up to 1.3606 before the euro could resist any further gains. Average earnings index rose to 2.1% from 1.8% whilst claimant count change fell to -38.6K from -35.8K. This strong result from average earnings marked the widest margin between wage growth and inflation since 2008.
- A quieter day in the UK calendar could help euro gains but only if this afternoon’s ECB monetary policy meeting accounts are confident and hawkish, perhaps an unlikely scenario given current Eurozone conditions.
GBP/USD: Currently trading at 1.5458
- Strong employment data out of the UK, coupled with weak US data and hesitant word’s from Yellen, saw this pair climb from 1.5342 to 1.5480 throughout the day. US building permits fell from 1.06M to 1.05M and monthly PPI fell from -0.2% to -0.8%, both sets of data fell below predictions. Poor PPI results reflect the negative effects of the oil price plunge. Surprisingly dovish Fed minutes saw many officials against raising interest rates any time soon, with most in agreement that they should remain at near zero “for a longer time”.
- As traders continue to analyse yesterday’s minutes this morning, the dollar could continue to weaken. In the afternoon, focus will be on US data releases in the form of unemployment claims and Philly Fed manufacturing index. With both sets of data predicted to improve, we could see the dollar regain some lost ground.
EUR/USD: Currently trading at 1.1443
- As expected, yesterday saw a volatile day of trading in the pairing with poor data coming out from the US coupled with ongoing discussions on Greece. The euro has managed to strengthen this morning after reports broke that claimed that the ECB will offer a further €3.3bn in emergency cash.
- Today will be full of announcements from both sides of the Atlantic, with ECB minutes this morning and US manufacturing data this afternoon, providing for yet another day of uncertainty.
GBP/AUD: Currently trading at 1.9873
- Following the UK announcing a falling unemployment rate from 5.8% to 5.7% yesterday morning, we witnessed the rate move 2 cent in sterling’s favour by mid-afternoon before correcting and settling around 1.974. Due to media speculation stirring the market last night, Sterling has again picked up another 2 cent against the Aussie, with the rate currently trading around 1.986.
- A lack of data today will leave traders eyeing UK retail sales tomorrow, which is forecast to improve on last month’s reading. However as this is the only influential announcement scheduled for release until next week, we expect the rate to remain fairly steady after this morning’s surge meets resistance.
GBP/NZD: Currently trading at 2.0511
- Yesterday’s session saw Sterling posting two cent gains against the Kiwi before the NZD exhibited a surprising display of strength and resisted further gains around 2.055. Yesterday evening saw poor quarterly PPI input figures out of New Zealand, which were dragged down by lower dairy prices.
- With no data due out of New Zealand or the UK today, focus will be on US and Eurozone data. With US data forecast to improve, the Kiwi could continue to post gains.
GBP/CAD: Currently trading at 1.9293
- Sterling gained real momentum yesterday after another positive shift in UK employment. Canada’s Wholesale sales rose 2.5% to $55.4 billion in December, but this good news was not enough to stifle Sterling’s gains.
- Sterling has started today on the front foot and with a quiet calendar ahead, the Loonie will need to look to US unemployment claims data for some support.
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