Sterling Surges on Unexpected UK Earnings Growth

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Headlines

  • Surprise Westpac Leading Index Jump Benefits Australian Dollar – AUD exchange rates unlikely to hold gains
  • Sterling Leapt Higher After Fresh UK Earnings Growth – Hopes mount for end to ongoing wage squeeze
  • Anticipation Building for ECB Policy Decision – Euro under pressure on expectation of dovish commentary
  • US Treasury Secretary Pushed USD Exchange Rates Lower – Markets unsettled by prospect of trade war

Australian Dollar

Westpac’s leading index proved unexpectedly encouraging yesterday, with the six month annualised growth rate leaping 1.41% in December. This strong showing raises hopes that the Australian economy ended 2017 on a stronger footing, taking some strong economic momentum into 2018. As a result the Australian Dollar trended higher across the board on Wednesday, even though the Reserve Bank of Australia (RBA) is still likely to maintain a neutral policy bias for some time to come.

However, with no additional domestic data set for release ahead of the weekend AUD exchange rates are unlikely to maintain this bullish form for long.

Sterling

GBP exchange rates surged higher overnight on the back of a surprise improvement in the latest weekly earnings excluding bonuses figure. While the 2.5% growth in earnings is still a significant way behind the current exchange rate this was not enough to dampen the resulting buoyance of the Pound. With UK employment also found to have picked up in November Sterling was encouraged to clock multi-month highs against both the Euro and US Dollar.

A modest increase in the BBA loans for house purchase figure could see the Pound making further gains this evening.

Euro

Although the latest raft of Eurozone manufacturing and service PMIs were largely encouraging this failed to keep the Euro on a stronger footing. Investors were somewhat disappointed to see a mild loss of momentum within the manufacturing sector, even though the PMI remained firmly in expansion territory. Some of this bearishness was also the result of markets beginning to brace for tonight’s European Central Bank (ECB) policy decision, which could yield another dovish message.

Unless ECB President Mario Draghi takes a more upbeat tone in his accompanying press conference the mood towards the Euro is likely to deteriorate further.

US Dollar

Worries over the increasingly belligerent trade stance of the Trump administration continued to weigh on the US Dollar, with fears of a potential trade war with China escalating. Comments from Treasury secretary Stephen Mnuchin added to the weakness of USD exchange rates, with the official noting that a softer currency is better for the US economy. All in all, political developments and concerns remain a significant drag on demand for the US Dollar at this juncture.

Any narrowing of the advance goods trade deficit may offer USD exchange rates some support overnight.

Canadian Dollar

Oil prices returned to an uptrend in the wake of a better-than-expected US crude inventories report, which showed a drawdown of 1.1 million barrels on the week. This failed to offer any substantial boost to the Canadian Dollar, however, as CAD exchange rates remained largely under pressure. Lingering concerns over the future of NAFTA kept the Canadian Dollar on a weaker footing, even as a soft US Dollar boosted general market risk appetite.

Loss of momentum in November’s Canadian retail sales figures could see the Canadian Dollar shed further ground against its rivals.

New Zealand Dollar

Risk appetite continued to support the New Zealand Dollar on Wednesday, capitalising on the persistent weakness of the US Dollar. As credit card spending continued to grow solidly, rising 6.3% on the year in December, this gave markets additional reason to favour the ‘Kiwi’. With signs pointing towards robust levels of domestic consumer confidence the downside potential of NZD exchange rates was limited.

Even so, greater volatility is likely for the New Zealand Dollar today as a result of the fourth quarter gross domestic product data.

Data Released

January 25th 07:45 NZD Consumer Price Index (YoY) (4Q) 1.9%
January 25th 19:30 GBP BBA Loans for House Purchase (DEC) 39,800
January 25th 22:45 EUR European Central Bank Rate Decision 0.0%
January 25th 23:30 EUR ECB President Draghi Holds Press Conference
January 25th 23:30 USD Advance Goods Trade Balance (DEC) -68.6 billion
January 25th 23:30 CAD Retail Sales (MoM) (NOV) 0.8%

Post by TorFX

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