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18 Feb 2015

Pound higher as earnings, employment and minutes all upbeat

United States Dollar: The pound rallied yesterday following a plethora of positive economic data releases. To start with, the UK’s average earnings index rose by 2.1% in the year to December vs. expectations for 1.7%. Although it wasn’t a hugely impressive number the trend over the last few months has been higher. Moreover, it shows that average wage growth in the UK continues to outstrip the rate of inflation, good news for households and good news for the government as election time approaches. Other data showed that January’s claimant count fell by 38,600 whilst the unemployment rate fell to 5.7% vs. expectations for 5.7%. GBP/USD jumped from 1.5345 to 1.5440 on the back of the data and in other GBP supportive news yesterday the Bank of England minutes showed that MPC members once again voted unanimously to leave interest rates on hold at their last meeting. The minutes also indicated that the slowdown in inflation would be temporary and went on to say “absent further such movements in commodity prices or sterling, the effects of these factors on 12-month CPI would dissipate towards the end of 2015, causing inflation to pick up towards the target fairly sharply.” The pound continued to push higher throughout the day as a result and spiked later in the evening following the US FOMC Minutes. In summary, the Fed indicated there was no rush to hike interest rates in the States. The word “patient” remained in the statement as members believed that dropping it would skew market sentiment. The dollar drifted lower as a result and GBP/USD jumped to 1.5476. Cable has held firm in Asia and it opens this morning at 1.5445.

We expect a range today in the GBP/USD rate of 1.5350 to 1.5525

Euro: EUR/USD declined throughout the morning on Wednesday as the Greek/EU saga and negotiations played out. It fell to a low of 1.1334 but then spiked later in the day following the release of the FOMC minutes, jumping back above 1.14 to 1.1405. It’s now come to light that the ECB are reportedly ready to approve an increase in emergency liquidity assistance for Greek banks by €3.3 billion, this after already raising the amount available to Greek banks last week by €5 billion. In the meantime the Greek government continue to seek an extension to their credit programme, so if anything this recent event may buy Varoufakis et al. some much needed time. It’s provided a modicum of support to the single currency too and EUR/USD opens in Europe at 1.1430. It’s not fairing so well vs. the pound though, this following the positive UK economic data yesterday. GBP/EUR trades at 1.3510 currently. For the first time today the ECB will publish their own monetary policy meeting minutes, similar to how the Bank of England and Fed publish theirs and they will be eyed closely especially so following the central bank’s announcement of an unprecedented stimulus package at its last meeting.

We expect a range today in the GBP/EUR rate of 1.3450 to 1.3550

Aussie and Kiwi Dollars: AUD/USD and NZD/USD have bounced around over the last 24 hours, not unsurprising given the lack of liquidity throughout the local trading sessions with it being Chinese New Year. AUD/USD gapped higher following the FOMC minutes and ended up trading to a session high of .7843. It then fell back to pre-FOMC levels after Standard & Poor’s Ratings Services backed the RBA’s warnings that the country’s federal budget is vulnerable to any global economic shock. In an interview with the Wall Street Journal, Craig Michaels – a sovereign analyst with the company – said “the budget deficit would go from 2% of gross domestic product to five or six, in a heartbeat. That would happen very quickly if we had a serious downturn.” Across the Tasman, the kiwi held on to gains that it made following the FOMC minutes and despite the release of weaker than expected NZ producer price data. It opens in London at .7545.

We expect a range today in the GBP/AUD rate of 1.9700 to 1.9950

We expect a range today in the GBP/NZD rate of 2.0340 to 2.0550

Data Releases

AUD: No data

EUR: Current Account, ECB Monetary Policy Meeting Accounts, Consumer Confidence

GBP: CBI Industrial Order Expectations

NZD: No data

USD: Unemployment Claims, Philly Fed Manufacturing Index, CB Leading Index m/m, Crude Oil Inventories

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