Headlines
UK unemployment on tap
– Wage growth tipped to accelerate.
Eurozone core inflation rises
– Weak Euro seen supporting price pressures.
‘Cable’ close to 4.5-yr low
– Fed commentary due this evening.
New Zealand Dollar declines on poor dairy auction
– Dairy prices slide -9%.
Sterling
Although there were no significant British data releases yesterday for investors to get their teeth into, markets were given some new information as to how the consumer price index will be measured this year. The Office for National Statistics (ONS) announced that e-cigarettes, craft beer and spotify subscriptions have been added to the ‘basket’ of consumer goods used to measure inflation, whilst sat navs, yoghurt drinks, and foreign exchange commissions have been removed.
In other news the government announced that the minimum wage in Britain would rise by 30p to £6.70 an hour. This measure, which will take effect in October, will represent the largest increase in the minimum wage for seven years and should help boost consumer spending as those at the lower end of the pay scale start to benefit from slightly larger monthly pay packages.
There is potential for Sterling to appreciate today if data prints in line with market expectations and shows that UK unemployment sunk to a new six-and-a-half-year low of 5.6% and that wage growth increased by 2.2% in the three months to January on the year.
Euro
The Pound to Euro exchange rate weakened by just over a cent yesterday in reaction to a better-than-anticipated set of Eurozone inflation numbers.
Data from Eurostat showed that consumer prices increased from -0.6% to -0.3% in February, as expected. But perhaps more interestingly, the core CPI score (which excludes volatile elements such as food and fuel) rose from 0.6% to 0.7% indicating that the recent weakness in the single currency could be starting to have a positive impact on price pressures. If this phenomenon continues in March, as it is expected to, and if the impact of the European Central Bank’s liquidity-boosting easing scheme starts to work its way through financial markets, there is potential for the Eurozone to move out of disinflationary territory over the coming months.
The surprise uptick in core CPI meant that investors, for the most part, overlooked March’s German ZEW index print of 54.8, which, although the best score for over a year, was significantly lower than the market consensus of 59.4.
US Dollar
The Pound gave back its Monday gains against the US Dollar yesterday, bringing ‘cable’ back down to within a third of a cent of a new four-and-a-half-year low.
The move did not appear to be data driven because there were no key UK economic releases and the only US prints came in confusingly: building permits rose by 3.0% but housing starts plummeted -17.0%. Therefore it looks as if GBP/USD’s latest decline was motivated by technical trading patterns as investors looked to position themselves ahead of today’s crucial Federal Reserve statement.
A hawkish stance from the Fed, most likely through the removal of the word ‘patient’ with regards to the timing of the first rate hike, could drive GBP/USD lower by up to three-and-a-half cents to the next technical support level. However, a slightly more cautious Fed announcement could theoretically dampen rate hike bets and push Sterling back up towards the psychological pivot point of 1.50.
Canadian Dollar
Demand for the Canadian Dollar remained remarkably robust yesterday, helping the ‘Loonie’ rack up a 150 pip daily gain against the Pound even though oil prices continued to slide. However, GBP/CAD could easily rally back later this morning if UK labour data points towards an earlier-than-anticipated rise in the Bank of England’s benchmark interest rate.
Australian Dollar
Despite the Reserve Bank of Australia’s latest minutes report showing that interest rates may well be slashed again over the forthcoming months, the Australian Dollar managed to register a 40 pip gain against the Pound during yesterday’s session. But without any clear motivation to strengthen, the ‘Aussie’ could find itself depreciating against Sterling later today if UK wage growth impresses.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied by around 70 pips yesterday afternoon when it was reported that dairy prices sunk nearly -9% at the latest auction. This seriously undermined sentiment towards the ‘Kiwi’ Dollar because dairy products are New Zealand’s most lucrative exports.
Data Released Today
GBP ILO Unemployment Rate (3M) (JAN)
GBP Average Weekly Earnings (3M/YoY) (JAN)
GBP Bank of England Minutes
USD Federal Open Market Committee Rate Decision (MAR 18)
USD Fed Chair Yellen Holds Post-FOMC Press Conference
NZD Gross Domestic Product (YoY) (4Q)
NZD Gross Domestic Product (QoQ) (4Q)