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Can the pound hold gains heading into the Easter weekend?

Wednesday’s UK wage data turned out to be slightly better than forecast, so the pound enjoyed a fairly strong day of trading.

Wednesday’s UK wage data turned out to be slightly better than forecast, so the pound enjoyed a fairly strong day of trading.

 

The GBP/USD exchange rate finally pushed above the key $1.25 level (hitting a high of $1.2575). Meanwhile, GBP/EUR held €1.1750 and GBP/AUD struck a new two-month high of AU$1.6710.
GBP/NZD climbed a cent over the course of trading, pushing all the way to a seven-month best of NZ$1.8070.
The pound wasn’t able to come out on top against the Canadian dollar however, with the BoC interest rate decision leaving GBP/CAD trading in the region of C$1.6613.
The main UK causes of pound movement next week are likely to be the Rightmove House Price report and retail sales numbers for March.
Yesterday’s pound gains were largely the result of the UK’s latest jobs data showing a slightly stronger-than-forecast increase in average earnings. Average earnings including bonuses increased by 2.3% rather than the 2.2% expected. Wages excluding bonuses were up 2.2% rather than 2.1%.
However, the pound’s advances were a little timid in light of the fact that the UK added fewer positions than expected in the three months through February. The employment change of 39k was almost half the 70k job increase anticipated.
Later in the day the GBP/USD exchange rate was able to push higher as US President Donald Trump sent the US dollar reeling.
Trump asserted; ‘I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting – that will hurt ultimately […] It’s very, very had to compete when you have a strong dollar and other countries are devaluing their currency.’
Hints that the US should maintain a policy of low interest rates contributed to the evaporation of demand for the US dollar and allowed higher-risk currencies (like the Australian and New Zealand dollars) to climb.

Wise Money markets data coming up

There isn’t much on the data calendar with the potential to inspire significant currency movement today, so the pound may be able to close out trading ahead of the four-day weekend in a stronger position against many of its currency rivals.
If German inflation is confirmed at 0.2% on the month and 1.5% on the year in March, GBP/EUR could firm slightly amid bets that the European Central Bank (ECB) will refrain from making any changes to monetary policy for the foreseeable future.
Similarly, GBP/USD may consolidate its position above $1.25 if the University of Michigan Confidence index dips from 96.9 to 96.6.
The main UK causes of pound movement next week are likely to be the Rightmove House Price report and retail sales numbers for March. A drop in consumer spending would be pound-negative.
Although the Eurozone is set to publish final inflation figures, consumer confidence data and preliminary services, manufacturing and composite PMIs, the euro may prove more reactive to the latest developments in the French Presidential election.
In terms of US news, the nation’s housing and industrial/manufacturing stats could be the main market-movers. Reports which support the case in favour of a June rate hike from the Fed would be US dollar supportive.

Pound hits March high vs. euro

The beginning of Brexit didn’t faze the pound yesterday, with the currency racking up gains all over the place.

The beginning of Brexit didn't faze the pound yesterday, with the currency racking up gains all over the place.

GBP/EUR achieved its best levels of March, surging from a low of $1.1550 to hit $1.1700. While the pound wasn’t able to return to trading above $1.2500 against the US dollar it did gain half a cent despite a sturdy US growth figure.

Sterling stormed higher against the New Zealand dollar, rallying almost 2 cents to achieve a best rate of NZ $1.7890. GBP/AUD gains were slightly less impressive, with the pound failing to hold a high of A$1.6352 and closing the day at AU $1.6267.

What’s been happening?

Although the UK is now facing two years of potentially arduous Brexit negotiations, the pound is currently benefiting from the pretty friendly tone of initial communications between Britain and the EU.

Lloyd’s of London did announce that it would be relocating jobs to Brussels, but markets were cheered by the governmentís plan to implement the ‘Great Repeal Bill’ in May – a move which will turn an epic list of EU laws into British ones.

The pound was also able to advance on the euro due to a disappointing set of inflation figures for Germany. With the nation’s consumer price index decelerating by significantly more than expected, hopes that the European Central Bank (ECB) will tighten stimulus in the near future dimmed, and the euro softened accordingly.

In terms of UK data, the GfK consumer confidence index held at -6 in March rather than sliding to -7 as forecast. The Lloyds business barometer was less reassuring however, dropping from 40 to 35.

What’s coming up?

Already today Nationwide house price figures have fallen short of the mark, with property prices sliding -0.3% on the month (instead of climbing 0.3%) and rising 3.5% on the year (down from price growth of 4.5% in February).

Currency volatility could be on the horizon next week thanks to a number of high-profile data releases. For the UK we’ve got manufacturing, construction and services PMIs, manufacturing/construction output numbers and trade balance figures. If the UK’s PMIs show that growth in the nation’s three key sectors remained robust in March, it would up the odds of more Bank of England (BoE) policymakers voting for higher borrowing costs and give the pound a boost.

The Eurozone will be offering up unemployment and retail sales numbers, along with German factory orders and construction stats. Meanwhile, US dollar fluctuations are most likely to occur in response to the US non-farm payrolls data. Sturdy employment figures would support Fed rate hike expectations (and the US dollar) while any sign of weakness in the labour market could put the plan for two further rate hikes in jeopardy and leave USD exchange rates weaker.

BoE rate decision ahead, could the pound gain?

The pound dropped to a new two month low against the US dollar ahead of the Federal Reserve’s interest rate decision.

The pound dropped to a new two month low against the US dollar ahead of the Federal Reserve’s interest rate decision.

 

But GBP might be safe from further losses.

What movement have we seen in the wise money markets?

It’s been a pretty hectic week for news, and yesterday we had the Fed rate decision, Dutch election and UK jobs data to contend with.

While the pound was able to hit 1.15 against the euro on Dutch election concerns, it has since fallen back to trading at 1.14.

The pound US dollar exchange rate, meanwhile, advanced to a high of 1.23 after the US interest rate decision before easing slightly to 1.22.

Sterlingís performance against the Australian dollar was a little less impressive, with the GBP/AUD exchange rate spiking to 1.61 before the Fed announcement but sliding to 1.59 in its wake. The pound remained trading in a weaker position against the Australian dollar despite Aussie jobs data falling short of the mark.

So, what happened?

The pound was able to rally yesterday as The Times published a report which detailed the need for the BoE to raise interest rates soon in order to counter the impact of rising inflation.

According to the economists referenced in the report, the BoE should increase borrowing costs by 25 basis points within the next couple of months.

The news that UK unemployment fell to its lowest levels in 41 years was also pound supportive, although disappointing wage data did limit GBP gains.

The GBP/EUR exchange rate also fell from its best levels as the far-right candidate in the Dutch election, Geert Wilders, came a distant second. As fears of rising populism have been holding the euro back in recent weeks, the news was enough to give the currency a boost.

Finally, over in the US the Federal Reserve acted as everyone expected and raised interest rates at its latest policy meeting. However, the pound actually strengthened against the US dollar on the news as the outcome had been predicted so far in advance and the Fed offered no real indication of when rates might be increased again.

What should you be looking out for?

Today’s big news is the BoE interest rate decision, due at lunchtime. The central bank isn’t likely to make any changes to policy at this point. However, if it mentions inflation and hints that borrowing costs will have to be reviewed if consumer price pressures keep growing, the pound could climb against currencies like the euro and US dollar this afternoon.

The Eurozone’s final consumer price index for February will also be of interest. If it confirms that inflation hit a four-year high, it could put pressure on the European Central Bank (ECB) to reconsider its own outlook on interest rates.

Spring budget could trigger pound shifts today

The pound dropped to new multi week lows ahead of the spring budget and could extend those losses today if tax hikes and spending cuts are revealed.

The pound dropped to new multi week lows ahead of the spring budget and could extend those losses today if tax hikes and spending cuts are revealed.

What movement have we seen in the currency market?

While the Australian dollar gained on a cautiously optimistic interest rate announcement from the Reserve Bank of Australia (RBA) and the US dollar remained supported by Fed rate hike expectations, the poor pound experienced another day of declines.

Sterling slid by -0.3% to hit seven-week lows against the euro and US dollar on Tuesday – with GBP/USD falling below 1.22.

What happened?

Well, for starters the UK published another batch of disappointing economic data.

Concerns that rising inflation and stagnant wage growth are hampering consumer spending were compounded as the British Retail Consortiumís (BRC) annual like-for-like sales figure for February came in at -0.4%, revealing a sharper drop than forecast.

Economist Samuel Tombs said of the result; ‘The BRC’s survey provides more evidence that the surge in retail sales in the second half of last year reflected consumers bringing forward purchases from 2017, because they anticipated price rises. The weakness was concentrated again in non-food sales, which fell by 0.2% on a total basis in the three months to February, the lowest growth since November 2011.’

Halifax housing data also showed that house price growth slowed to a three-year low.

Adding to the pound’s woes was speculation surrounding today’s UK spring budget.

What should you be looking out for?

Chancellor of the Exchequer Phillip Hammond is expected to discuss grammar school funding, social care, youth employment, fuel prices, stamp duty and pensions.

If the markets don’t like what Hammond has to say, the pound’s bad week could get even worse. However, if the Chancellor outlines some spending increases sterling may be able to pull itself away from this weekís lows.

Beyond the budget, the next UK news to focus on is the house price balance number from RICS. As it stands, a decline from 25% to 23% is anticipated.

Markets focus on a possible rate hike

The US Dollar is slightly weaker on the pound as the markets have reacted to Donald Trump’s congress speech.

The US Dollar is slightly weaker on the pound as the markets have reacted to Donald Trump's congress speech.

This reaction was fairly limited and markets are instead focusing on significantly higher risks of a rate rise by the Fed at the 14-15 March meeting, especially after the comments from New York Fed President, Dudley, that the case for tightening ìhas become a lot more compellingî. As a result, there could be some market volatility on the dollar in the coming weeks, while investors look to take their positions.

Anti-climax of Trump’s speech

US President eagerly awaited speech was a slight anti-climax as he offered an uncharacteristic upbeat theme that sought to calm his opponents. Despite delivering an address which had a familiar ‘America First’ theme throughout, similar to that of his inaugural speech, there was more of a presidential tone which could be a sign that he is trying to be more diplomatic in his firm approaches. Furthermore, Mr Trump reconfirmed that he intends to repeal and replace Obamacare, increase defence spending, enforce immigration laws and also overhaul tax including cuts for the middle class.

Today’s data

Most of the day will be spent deciphering Mr Trump’s speech with some potential volatility later in the day. Data wise, we’ll have the German provisional CPI (exp 0.6%mm, 2.1%yy) and Unemployment (exp -10K, 5.9%) for January and the US Personal Consumption/Expenditure figures. The Construction Spending and Total Vehicle Sales are also due, as well as Fed speeches from Kaplan and Brainard, late in the day.

UK workers on the rise

Yesterday, Britain’s jobless rate figures were published for Q4 of 2016, indicating an 11 year low of 4.8% as firms keep hiring workers post-Brexit, but wage growth had reduced.

Yesterday, Britain's jobless rate figures were published for Q4 of 2016, indicating an 11 year low of 4.8% as firms keep hiring workers post-Brexit, but wage growth had reduced.

The number of people in work grew by 37,000 in Q4, confirming 31.84 million people are in work, up by more than 302,000 employees from a year earlier, a record high year-on-year. The number of people out of work fell by 7,000 in the same period, taking the total figure down to 1.6 million.

Wage growth was weaker, but expected, with average earnings excluding bonuses rising by 2.6% in Q4, down from 2.7% from previous reading. Wednesday’s report also shows that real wage growth in the UK economy has now tumbled to a two-year low, putting pressure on normal households.

EU and Canada finally approve trade deal

The EU and Canada look to have approved a trade deal, with members seemingly accepting the agreement. The trade agreement between the pair is expected to create a further 20% boost between economies from the existing £51 billion they share. Belgium’s ex-Prime Minister has welcomed the news, declaring that the pact is ‘tearing down tariffs whilst Trump makes it more difficult’.

CPI in US leaps to 5 year high

Consumer Price Index for the US leapt to a 5 year high, as higher oil prices took hold of the global markets. Januaryís numbers grew by 0.6%, meaning inflation in the US now stands at 2.6%, which is higher than forecasts predicted. Like the UK and Eurozone, the US see 2% as an acceptable level.

With Donald Trump wanting to get government investment as high as $1billion, inflation could set to rise further and break the 3% levels in 2017.

Data to come

This morning in Australia, the unemployment rate fell from 5.8% to 5.7%, giving AUD a slight lift. Data today is thin, with the US in the spotlight. US Housing Permits and Initial jobless claims are out for viewing, with the Phili Fed Business Outlook for consumption this afternoon.

Busy week ahead for the US

Last week, we saw a fairly subdued market with a lack of important data as most releases of note were focussed on the commodity currency countries such as Canada and New Zealand.

 Last week, we saw a fairly subdued market with a lack of important data as most releases of note were focussed on the commodity currency countries such as Canada and New Zealand.

There were also no major developments regarding Brexit and political uncertainty within the US and Europe.

The week ahead is looking a lot busier, macro-schedule wise. Fed Chair Janet Yellen’s semi-annual testimony to Congress (Tuesday & Wednesday) will call for close attention, as sheís likely to be asked about any possible implications for the monetary policy of Trump’s fiscal stimulus. Furthermore, any hints that the Federal Reserve may have to revise its interest rate projections higher could provide a spot of strength/support to the dollar.

Looking back at the macroeconomics this week, a busy schedule for the US includes features January’s retail sales, industrial output and CPI figures. On the other hand, with all eyes on Trump and the Fed, the dollar reaction to the data may be limited.

A potential week of struggle for the euro

There’s also a fairly light Eurozone schedule regarding market data, with the January ECB ‘account’ as the main highlight. Therefore, the euro could struggle this week and the GBPEUR pairing would potentially move upwards, should the expected results follow through. We may also see a dip in confidence as the UK could lose its position as a ‘gateway to Europe’ for the worldís financial services industry, according to last weekís speech by Dr Andreas Dombret, an executive board member at the Bundesbank. However, weíre likely to see these comments dismissed should this week follow suit, as mentioned.

Expected increase in UK retail sales

Lastly, here in the UK, retail sales are expected to record a solid increase for January, while a further mark-up on inflation is also predicted. Overall, the UK’s macro schedule looks like it could be beneficial for the strength of Sterling across the next few days with CPI figures, average earnings index and claimant count change.

Looking at today’s calendar, this morning we will receive Europe December industrial production reports for France, Italy and the UK. As we look at the US this afternoon import price index reading for January is the main piece of data together with the flash University of Michigan consumer sentiment reading for this month. As mentioned earlier, the main event to keep an eye on is the meeting between President Trump and Japan PM Abe.

Markets end week on mixed note

Markets ended the week on a mixed note, following the release of US Jobs data on Friday.

Markets ended the week on a mixed note, following the release of US Jobs data on Friday.

Non-Farm Payroll showed 227k growth in the job market in January, much stronger than the expectation of 175k and up from the previous monthís 157k, the headline unemployment rate also rose 0.1% to 4.8%, above expectation of remaining unchanged.

Despite this, the bigger concern was seen in wage growth, where the average hourly earnings rose 0.1% mm in January, much lower than expectation of 0.3% mm. As a result, weíve seen the dollar strengthen, as it made further ground on Sterling early this morning.

Brexit squeeze for companies

More than half of Britain’s largest companies are now suffering from a vote to leave the European Union last June. A new survey of business leaders found that 58% said the Brexit vote was already having a negative impact on their firm, with just 11% saying that it had helped business.

This coincides with many businesses across the city calling on Chancellor Phillip Hammond to ease the burden on firms in next monthís budget, as business rates across the UK are due to rise in April for the first time in seven years.

The confederation of British Industry (CBI) has voiced that the government need to change the way rates are calculated, in order to not put further pressure on businesses.

Data to come

Data today is fairly thin as weíve already had German factory orders mm which have come in much better than expected at 5.2%. The rest of the week will feature interest rate decisions from both the RBA and the RBNZ, and with no expected changes to their policies, we could see some volatility in the markets around the Asian sessions.

Bank of England expects UK economy to grow by 2%

Mark Carney has dramatically upgraded growth forecasts for the UK.

Mark Carney has dramatically upgraded growth forecasts for the UK.

This comes as the BoE revised growth forecasts significantly while keeping their inflation forecast unchanged. Fears of the bank leaving London post-Brexit have also now been dismissed.

The Bank of England expects the UK economy to grow by 2% this year, up from its previous forecast of 1.4% in November. 2018 and 2019 forecasts have also been increased by 0.1% each year and the unemployment rate could potentially fall to 4.5%, down from a previous estimate of 5%. The upgrade to growth prospects comes after strong consumer spending forecasts were attributed to a weaker currency.

However, the Bank has been cautious as it admitted there have been problems in assessing how Brexit and Trump will impact the local and global economy. Despite the upward revision for growth, investors sold off sterling as they were left disappointed by Mark Carney’s cautiousness with regards to Brexit as he said the journey has just started.

Wise Money market news

Itís time to look forward to the weekend and itís the first Friday of the month, Non-farm payrolls remain the main focus of the day. Over the past three months, Non-farm payrolls increased steadily with an average of 165K new jobs created. Todayís number is expected at 180k with the market unemployment rate to hold steady at 4.7% and average weekly earnings to rise +0.3% mom. The expectation for a strong number today is reinforced by jobless claims earlier totalling less than expected this week, a pickup in non-farm productivity and drop in layoffs

Data to come

We will start to receive data from Europe this morning, including January PMIís, where weíll get the final revisions to services and composite readings for the Euro area. Germany, France and the UK will also publish services readings. The Euro area will see retail sales numbers for December released.

In the US all eyes will be on the January employment report and, of course, the nonfarm payrolls. The payrolls will not be the only main focus as services and composite PMI revisions will be released in the US, while the ISM non-manufacturing reading for January and factory orders in December will also be seen.

Inflation set to move closer to 2%

As predicted, food sales across the UK rose by 1% year on year in December, as consumers cared not for Brexit, but for spending money over the festive period.

As predicted, food sales across the UK rose by 1% year on year in December, as consumers cared not for Brexit, but for spending money over the festive period.

With inflation set to move closer to the 2% marker, prices are set to increase. Morrisonís and Aldi are already profiting from cheaper prices than the bigger chains. Over the Christmas period consumers are known to treat themselves but some investors also believe we may see a cut down in spending as political issues start to surface once more.

FTSE 100 continues to move upwards

The tube strike over the past two days in London could have a massive effect on the economy, to the tune of ëtens of millionsí. Consumer spending on travel, food and alcohol would be at the forefront of the strike, which could flag up weaker data for January. The FTSE 100 continues to move upwards, as sterling continues to depreciate after Theresa May’s interview over the weekend, with the Market Priced Index having 10 consecutive days of gains.

Mixed bag of unemployment figures for EU

The EU had a mixed bag of unemployment figures, with figures of 8.3% now in unemployment which is the lowest itís been in since 2009. But the worrying rise was in youth unemployment. The number of younger workers out of a job rose 0.3% with Spain the biggest culprit. This is leading to an unbalance in the numbers as the younger generation is seen as key to growth in the long term future. Mario Draghi has stated that his monetary policy could be causing the delicate recovery.

Japanese consumer confidence data for December revealed its highest numbers for 2016, showing 43.1% against Novembers 40.9%, with Chinese CPI data showing a downturn of 2.1% for the same period against previous monthís marker of 2.3%.