Sterling rallies on improved and revised wage data, whilst the U.S. dollar maintains its recent highs, as an FOMC interest rate rise appears imminent
The U.K. pound enjoyed a boost on Monday as the official statistics agency for the U.K. the ONS, announced that they’d made an error in their calculations, over their recent wage inflation data. Wage inflation in the country is apparently running at 2.6% annualized, as opposed to the 1.6% figure published last week. This news encouraged investors to bid up the pound versus its peers, on the basis that the U.K. BoE and its monetary policy committee now has the justification to follow through on its commitment made last month; to raise the base rate from its record low of 0.25%, an emergency level put in place shortly after the Brexit referendum result in June 2016.
As to whether or not this single piece of data overpowers some of the poor hard and soft economic data, which the U.K. economy has generated over recent weeks, will be a subject of much debate leading up to the base rate announcement. Traders should pay attention to a raft of information published by the UK’s ONS on Tuesday concerning; manufacturing, construction and production, and the NIESR forecast for the UK’s next GDP figure. Readings that beat forecasts could continue the rise in sterling, versus its peers.
The BoE have changed their announcement schedule from 2017 onwards, there are now only eight meetings per year as opposed to the monthly meetings, the next meeting and decision is revealed on Thursday 2nd of November when the latest inflation report will also be released. Between now and then any positive hard data publications which are bullish on the U.K. economy are also likely to create bullishness in sterling.
The pound remained high on Monday, despite Theresa May the UK’s prime minister holding court in parliament, delivering another “no deal is better than a bad deal” speech and admitting that the U.K. is in effect powerless in the Brexit negotiations, as the remaining 27 member states will decide the country’s future. The country’s’ main equity index slipped, partly due to its negative correlation trade with sterling.
In a relatively light economic calendar news day, with trading in U.S. equities down circa 20% as the USA celebrated Columbus Day, German industrial production figures provided the key data release, smashing through expectations, by coming in at 2.6% growth MoM in August, versus expectations of 0.9%, the annual rise is now 4.7% above the forecast of 3%. As the engine room of manufacturing and export growth in the Eurozone, these extremely healthy figures helped push the euro up versus its major peers, with the prominent exception of euro v sterling.
The U.S. dollar spot index fell by approx. 0.1% during Monday’s trading sessions, USD/JPY remained close to flat on the day at 112.53. EUR/USD rose by circa 0.2% on the day, to end the day at circa 1.1749, ending the day just below the daily pivot point. AUD/USD was down approx. 0.1% on the day at 0.7859. USD/CHF ended the day closely parked to the daily pivot point, at 0.9768. GBP/USD breached R2 and rose by approx. 0.5% on the day, to break the losing streak the currency pair had endured last week and end the day at circa 1.3145. USD/CAD was little changed on the day, at 1.2543.
Sterling had made a significant recovery versus the euro since late September when EUR/GBP briefly breached the 93.00 handle. In recent weeks sterling recovered versus its peer, to then give up gains last week. EUR/GBP fell through S2 during the morning European session, to then recover to end the day at circa 89.30 just below S1. Sterling made similar gains, above R2, versus the majority of its main peers on Monday, due to the revived hope that the BoE/MPC will raise rates in November.
With the exception of its losses versus sterling, the single bloc currency made significant gains versus the majority of its peers. EUR/CHF ended the day above R1, a similar pattern was repeated versus both Australasian dollars and the other commodity currency, the Canadian dollar. EUR/JPY ended the day close to flat, resting near the daily pivot point at 132.54.
EQUITY INDICES AND COMMODITY PRICES FOR OCTOBER 9th
• DJIA closed down 0.06%.
• SPX closed down 0.18%.
• FTSE 100 closed down 0.20%.
• DAX closed up 0.16%.
• CAC closed up 0.11%.
• ASX 200 closed up 0.50%.
• WTI oil closed the day out up circa 0.7%, at $49.72 per barrel.
• Gold closed the day out up circa 0.6%, at $1286 per ounce.
KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 10th
• EUR German Trade Balance (euros) (AUG).
• EUR German Exports s.a. (MoM) (AUG).
• EUR German Imports s.a. (MoM) (AUG).
• GBP Manufacturing Production (YoY) (AUG).
• GBP Industrial Production (MoM) (AUG).
• GBP NIESR Gross Domestic Product Estimate (SEP).
• CAD Building Permits (MoM) (AUG).
« A Bank holiday in several countries, may impact on Forex Trading during Monday’s trading sessions Strong U.K. data causes sterling to rise and increases the November interest rate rise bets, German data also beats forecasts, helping to push the euro to weekly highs »