FX Market Summary 02-19-2014: Unemployment Rise Hampers Sterling

After pushing higher during the New York session on Tuesday, EUR/USD maintained a generally firm tone in Asia on Wednesday with only a very limited correction lower.

The Nikkei equity index drifted lower on the session and there was a slightly more cautious tone towards risk appetite which helped underpin the yen and USD/JPY drifted back towards the 102 level. The Chinese HSBC flash PMI reading will be important for underlying market risk conditions on Thursday and will have an important impact on the Australian dollar.

The main European focus was on Sterling with a key set of labour-market releases and Bank of England minutes. There was a further significant decline in the unemployment claimant count by over 25,000 for the month and the number has fallen every month since November 2012. In contrast, there was an unexpected increase in the ILO unemployment rate to 7.2% from 7.1% previously. This rate is more important for short-term market sentiment given the 7% Bank of England threshold and the data dampened tightening expectations to some extent.

The Bank of England minutes were broadly in line with expectations and Governor Carney did not call a vote on revised forward guidance which suggests no major splits within the MPC at this stage. Sterling spiked lower following the data as GBP/USD weakened to below the 1.6650 level while EUR/GBP moved above the 0.8250 level.

Euro-zone developments were limited with most attention focussed on increased levels of violence in the Ukraine. There was some caution ahead of the latest Euro-zone PMI readings on Thursday while Renzi continued his efforts to stitch together an Italian coalition government.

The US housing data was weaker than expected with starts falling to an annualised rate of 0.88mn from 1.05mn previously and permits also declines, although there were expectations of a weaker number given the adverse weather impact. There was a slightly higher than expected reading for producer prices, although the impact was measured. The dollar was resilient following the data, but unable to gain any significant headway, unable to recapture former support levels with caution also evident ahead of the Fed minutes due for release later on Wednesday.

EUR/USD overall was again able to resist any significant selling pressure and settled around the 1.3750 level with GBP/USD back above 1.6650. The Canadian dollar lost ground sharply following weak data and USD/CAD pushed back above the 1.10 level after initially probing one-month lows during the European session.

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