Sterling
It was reported yesterday that Britain’s unemployment rate remained at an 11-year low of 4.8% in the three months to October. Traders were pleased with a better-than-expected average earnings print of 2.5%, however, news that the total number of people in work declined -6,000 was cited by some as a cause for concern. Analysts were also concerned with the evolution of the jobs market away from full-time work to self-employment. 55,000 full-time positions were lost in the labour report, while the number of part-time self-employed workers rose by 53,000.
Today’s main event is the Bank of England’s December policy announcement, which is likely to see Threadneedle Street hold interest rates at 0.25% and the monthly QE target at £435 billion. Traders will be listening to BoE Governor Mark Carney’s statement for signs of future policy direction: any additional talk of increasing rates to combat rising inflation (as a result of the post-Brexit Sterling depreciation) could bolster the Pound’s appeal, while any remarks on the bank’s impermeability to short-term inflationary spikes could weigh on the UK currency.
Euro
Tensions flared once more in Greece yesterday as the Eurogroup announced it was putting debt relief negotiations on hold following Greek Prime Minister Alexis Tsipras’ decision to spend €617 million in one-off Christmas benefits to low-income pensioners, without consulting the nation’s creditors. Athens remains caught up in a longstanding argument with both European lenders and the IMF over the best course of action for the embattled Hellenic economy.
The Eurogroup wants Tsipras to administer further austerity – deemed self-defeating by many economists – in exchange for additional bailout funds, while the IMF is campaigning for Greek debt relief – but has angered Athens by posting public criticism of Greece’s (pressured) decision to accept an unrealistic budget surplus target. All the while Tsipras is planning to roll out an initiative to provide 30,000 school children with free meals.
The retraction of debt relief sent Greek debt yields surging 20 basis points, which had little impact on the Pound to Euro exchange rate. However, the single currency could yet feel the wrath of the Greek crisis if the situation escalates once more to a point where analysts are fretful over Greece’s future in the currency bloc.
US Dollar
The Pound to US Dollar exchange rate tumbled by over a cent last night in response to the Federal Reserve’s latest policy statement. Fed Chairwoman Janet Yellen raised interest rates 25 basis points to 0.75%, as was widely anticipated, and struck a fairly hawkish tone going forward. Demand for the ‘Greenback’ flourished in response to a shift in the Fed’s projections to suggest that there will be three additional rate rises next year, rather than previous estimates of two.
When quizzed on Trump, Yellen mentioned that the US labour market was running close to capacity, suggesting that the President-elect’s $1 trillion investment plan may not be necessary. The Fed Chairwoman said that she intended to stay the full four-year term until 2018, despite acknowledging that policymakers were ‘operating under a cloud of uncertainty at the moment’ due to the lack of clarity around Trump’s actual policies.
Canadian Dollar
Sterling traded higher versus the Canadian Dollar during the afternoon as risk aversion kicked in ahead of the Fed’s policy announcement but GBP/CAD softened somewhat following the announcement as investors locked in profit.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around a third of a cent following the Fed’s hawkish statement, which drove investors out of perceived riskier assets.
This session GBP/AUD is liable to trade with a positive bias until the BoE announcement at midday. If Governor Carney is seen to convey a more hawkish message than at previous meetings then the Pound is liable to push ahead, while signs that the Governor and his policymaking team are willing to look through the Sterling-influenced uptick in 2017 inflation expectations could hurt sentiment.
New Zealand Dollar
GBP/NZD followed GBP/AUD higher by around half a cent yesterday evening as hawkish Fed bets weighed on risk assets, and the ‘Kiwi’ is likely to track its Antipodean cousin – the ‘Aussie’ – versus the Pound throughout today’s session as BoE rate projections take centre stage.
Data Released
09:00 EUR Markit Eurozone Composite PMI (DEC P) Medium 53.9
09:30 GBP Retail Sales (YoY) (NOV) Medium 6.0%
12:00 GBP Bank of England Rate Decision (DEC 15) High 0.25%
12:00 GBP BOE Asset Purchase Target (DEC) High 435b
13:30 USD Consumer Price Index (YoY) (NOV) High 1.7%