FX Market Summary 07-16-2014: Dollar And Sterling Hold Firm

The dollar maintained a firm tone on Wednesday as markets assessed global monetary-policy trends with Sterling also broadly resilient. Chinese GDP and industrial production data was marginally above market expectations at 7.5% and 9.2% respectively which helped underpin risk appetite. The Australian dollar struggled to derive any benefit despite a solid tone for risk appetite as AUD/USD dipped to lows near 0.9330.

There was a mixed set of UK labour-market releases on Wednesday with further Sterling volatility. The headline unemployment rate fell to 6.5%, in line with market expectations and the lowest rate since the first quarter of 2009. There was also a further sharp decline in the claimant count of over 35,000 for the month. In contrast, earnings growth was weaker than expected at 0.3% while the figure excluding bonuses was at a record low of 0.7%.

Markets tended to focus on the earnings figure, especially as it would dampen pressure for any near-term Bank of England tightening. From a level above 1.7140, GBP/USD spiked lower to the 1.7110 area before finding fresh support with willing bidding into any significant price retreat.

The Euro remained on the defensive during the European session. There were further expectations of monetary-policy divergence with the ECB forced to maintain an even more aggressive policy while the Federal Reserve would move closer to tightening. EUR/USD maintained a downward trend with one-month lows near 1.3530 ahead of the New York open with markets eyeing the key 1.3500 support area.

Although the headline US producer prices index was stronger than expected at 0.4% from 0.2% previously, the core figure was in line with expectations which curbed the impact. There were also slightly weaker than expected readings for industrial production and capacity use while the NAHB housing index was stronger than expected at 53, the highest reading since February. There was no immediate impact from part two of Fed Chair Yellen’s testimony to Congress and EUR/USD consolidated just above 1.3530.

The Bank of Canada left interest rates on hold at 1.00% following the latest policy meeting and marinated a neutral stance. The statement made references to the risks of inflation being too low as equally as important as too high and growth forecasts were trimmed slightly. USD/CAD rallied to highs just above 1.0790 before hitting resistance and moving back to the 1.0760 area.

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