Pound Sterling (GBP) Reverses Earlier Gains
Sterling had quite a positive day yesterday due to traders reacting to the UK CPI data and further speculation of a softer Brexit.
The UK CPI release revealed four-year high inflation in May, coming in at 2.9% and beating the forecast of 2.7%. Whilst higher inflation tends to weaken consumer spending, the notion that this will prompt the Bank of England (BOE) to possibly raise interest rates was enough to increase some demand for the Pound – even though the bank forecast against this.
Whilst inflation has risen, wages have lagged behind. Growth in average weekly earnings including bonuses dropped from 2.3% to 2.1% while earnings excluding bonuses eased from 1.8% to 1.7%.
TUC General Secretary Frances O’Grady had this to say on the subject:
‘Real wages have fallen for the second month in a row. Unless the government gets its act together, we’ll soon be in the middle of another cost of living crisis. Ministers must focus on delivering better-paid jobs across the UK.’
The report undid the Pound’s earlier gains.
Euro Struggled against Germany’s Negative Economic Sentiment
Yesterday’s Sterling rally saw GBP/EUR advance, with investors taking advantage of the new post-election GBP levels by buying the currency while it sat in the trough of a seven-month low.
The German ZEW economic sentiment survey also weighed somewhat on the Euro, with financial experts giving a somewhat pessimistic prognostication for Germany’s economic situation with a score of 18.6 – that’s down from previous month’s 20.6, and indeed lower than the forecast of 21.8.
The surprising rise in UK CPI for May was followed by mixed employment data this morning, with UK unemployment coming in at 4.6% for February to April – maintaining the lowest levels since 1975.
Sterling failed to benefit from the positive aspect of today’s data, instead declining in the face of falling wage growth. Head of Economics at the British Chamber of Commerce Suren Thiru’s comments this morning shed some light on why the employment data may not be as significant as previously thought:
‘While employment levels are high by historic standards, businesses report that they are increasingly struggling to find staff with the right skills, which is constraining investment and productivity’.
GBP/USD Dips ahead of Fed Rate Decision
The Pound regained some of its composure against the US Dollar yesterday as higher inflation and the prospect of eventually increased UK interest rates provoked traders to buy.
US Attorney General Jeff Sessions defended himself against attacks in the Trump-Comey bout, vehemently denying all accusations of collusion with Russia, this provoked some confidence in the US Dollar, as the threat of Donald Trump facing inquiry proves increasingly unlikely.
The main drivers of movement today for the US Dollar will be the US inflation report, which is forecast to reveal a decrease in CPI from 2.2% to -2.0% and the Federal Reserve’s policy announcement. The expectation is that the Fed will hike interest rates by some 25 basis points. Any nods to future rate increases will bolster the ‘Greenback’.
Today’s negative UK wage data has taken a toll on GBP/USD, with the pairing falling from the day’s opening levels.
Canadian Dollar Fluctuates, Oil Prices Fall
Sterling traded within a relatively small band against the Canadian Dollar yesterday as despite the Pound rallying somewhat, the ‘Loonie’ benefited from Bank of Canada (BOC) rate hike hints.
The future outlook for the BOC is actually quite hawkish, with interest rate bets surging from 22% to 72% yesterday. BOC Governor Stephen Poloz suggested that 2015’s interest rate cuts have done their job – this indicates that the central bank may be close to increasing interest rates.
Meanwhile, oil prices fell today with industry data revealing an increase in U.S. crude stocks, and OPEC reporting a jump in production – despite their output cut pledge. This could prove a problem for the ‘Loonie’ in the coming weeks.
Sterling Appreciated against Australian Dollar, ‘Aussie’ Investors Await US Fed Rate News
The Pound appreciated against the Australian Dollar yesterday on the back of the UK CPI release and profit taking. Gains were short lived however, and Sterling lost 0.6% against the Aussie thanks to UK wage data.
If the Federal Reserve increases interest rates this evening the Australian Dollar could slide, giving GBP/AUD the chance to recoup losses.
Sterling Climbed Against NZD, but Positive Forecast for New Zealand GDP Halts Rally
Yesterday saw the Pound climb just over a cent against the New Zealand Dollar as traders reacted to the UK’s inflation news.
Today will see the release of New Zealand’s GDP data, which is forecast to demonstrate an increase from 0.4% to 0.7% for the first quarter, so keep an eye on GBP/NZD, as it may see dips later in the day.
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