UK average earnings, yesterday morning, missed expectations, falling more than had been anticipated from last month’s 5 year high. While in the moment this is not at all supportive for the pound, and goes a little way to justifying some of the Bank of England’s comments from last week, in the greater scheme of things the earnings index is still looking very healthy compared to most readings over the last 5 years. The number of people claiming unemployment also posted a surprising drop, which suggest that the jobs data is still moving in the right direction despite the drag of the fuel-influenced low inflation levels. Lloyds Banking Group have posted 2015 and 2016 year-end targets for GBPEUR and GBPUSD and interestingly see a similar range as recently experienced through to the end of the year followed by significant weakening throughout 2016: 1.24 and 1.45 against euro and dollar respectively.
The US currency suffered significant losses yesterday, specifically against the euro and sterling. Choppy markets make the prospect of a September rate hike a little less certain and the Chinese action in the last few days is just another consideration to throw into the mix. Market pricing for lift-off of interest rates to commence next month has fell below 40% from almost 55% just less than a week ago. EURUSD squeezed higher, breaking out of the downward channel from the last couple of months. This morning has allowed the dollar to recover a little from yesterday’s lows but from a technical perspective there could yet be further losses to come. Ahead, we have retail sales, weekly unemployment, import prices and business inventories which sets up a potential choppy afternoon to look forward to.
The euro was the biggest winner yesterday, gaining almost 2 cents against both the pound and dollar. German and French CPI this morning were both in line with expectations and the only other release of note is the Accounts from the last ECB monetary policy meeting. It is difficult to imagine that there will be too much of a surprise in that report, given that the ECB give their statement, press conference and Q&A session at the time, 4 weeks ago. The banks are a bit confused as to where the EURUSD will go from here, with Danske long and targeting just shy of 1.13 while Barclays Plc are short and aiming for 1.0460.
Telegraph – China says no basis for further depreciation as yuan falls for third day.
The Times – German concerns threaten Greek bailout.
FT – Gold demand falls to six-year low.
Pound Sterling (GBP), Euro Currency (EUR), US Dollar (USD) exchange rates commentary is provided by Argentex (Ag-Fx.com)