Sterling
The Pound ticked slightly higher yesterday as markets reacted tentatively to the latest slice of British data to show that the economy has not been too badly affected by June’s EU referendum.
The headline unemployment rate slid unexpectedly from 4.9% to a new 11-year low of 4.8%, however, it was noted that 49,000 people dropped out of the labour market and an additional 10,000 filed claims for jobless benefits. Analysts were also concerned with the rate of pay growth, which, at 2.3%, is likely to be outpaced by inflation in the near future. Indeed, according to the Bank of England, CPI is likely to hit 2.7% next year as the impact of Sterling’s recent 15-20% devaluation drives price pressures higher.
Euro
The Pound to Euro exchange rate posted timid gains of around a quarter of a cent yesterday. The surprise drop in UK joblessness boosted Sterling slightly, but the details of the report had cause for concern and subsequently GBP/EUR did not breakout from a tight 50-pip trading range.
Currency traders’ attentions were piqued during the afternoon when BoE policymaker Jon Cunliffe said that there was ‘a sense of change in the air’ regarding global interest rates and inflation expectations. Cunliffe noted that the UK economy still needed ultra-low interest rates but suggested that the depreciation of the Pound, combined with the prospect of imported inflation from America under Trump, had the potential to create a situation where interest rates would need to rise over the next few years.
The only key Eurozone ecostat to look out for this morning is the October CPI report, which is tipped to rise slightly from 0.4% to 0.5%.
US Dollar
‘Cable’ remained relatively flat yesterday as the mixed bag of UK labour data failed to ignite demand for Sterling. The US Dollar, meanwhile, avoided defeat even though US industrial production decelerated unexpectedly from 0.1% to 0.0%.
The ‘Greenback’ may have gained support from hawkish comments from Federal Reserve policymaker James Bullard, who noted that rates would rise in December bar any new ‘major shocks’. However, markets were already pricing a 90% chance of a December hike prior to Bullard’s comments so the impact on the US Dollar was fairly muted. Additionally, it is worth noting that if the victory of a candidate who did not even have the backing of his own party, who aims to build a wall around the southern border of the US and supports ‘extreme vetting’ of immigrants on grounds of religion does not count as a ‘major shock’ then there is very little chance that anything will knock the Fed off course on this one.
Canadian Dollar
Sterling lost out on around half a cent against the Canadian Dollar yesterday. Oil prices edged higher, bolstering the appeal of the commodity-correlated ‘Loonie’, despite a larger-than-anticipated increase in US crude inventories. The surprise 5.3 million uptick in crude storage was overshadowed, in traders’ minds, by positive comments from Russian energy minister Alexander Novak, suggesting that Russia was ready to meet with Saudi Arabia in order to clinch a deal to curb output and boost prices.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by around 150 pips yesterday as UK unemployment hit an 11-year low and Australian wage costs slowed unexpectedly from 2.1% to 1.9%.
Sterling could gain more ground today if this morning’s UK retail report shows, as expected, that sales volumes accelerated 0.4% in October.
New Zealand Dollar
GBP/NZD failed to hold onto any labour market related gains yesterday as profit taking took the Pound back down against the ‘Kiwi’ Dollar during the afternoon. However, technical analysis suggests that Sterling could be on the verge of posting a strong rebound versus the New Zealand Dollar. If dovish rhetoric from the Reserve Bank of New Zealand sparks a surge in rate cut bets, this could be the catalyst to start Sterling’s potential surge higher.
Data Released
09:30 GBP Retail Sales (YoY) (OCT) Medium 5.4%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (OCT F) Medium 0.5%
13:30 USD Consumer Price Index (YoY) (OCT) High 1.6%