European Session – Pound outperforms on strong UK jobs data
The best performing major currency was the British pound which gained about 0.5% against the dollar on the day so far. Strong UK employment data and earnings numbers helped lift sterling to the highest level since January 2nd, topping at 1.5439. The Bank of England minutes also provided few surprises.
Average weekly earnings, including bonuses, rose 2.1% in annual terms in the three months to December, beating forecasts for a 1.7% increase. This compared to a 1.8% increase in the three months to November. The unemployment rate fell to a 6-year low of 5.7%. The number of people claiming unemployment benefits in January declined by a larger than expected 38,600 claims. Economists’ forecasts were for a fall of 25,000 claims.
The euro fell back below the key 1.1400 level to touch a low of 1.1358, retracing most of Tuesday’s gains versus the dollar. News reports today suggest that Greece will request an extension of its current loan agreement beyond the end of February by six months, buying time for negotiations to continue.
There was a series of US economic data releases today, which included housing starts and permits, PPI and industrial production. These data did not cause large moves for the dollar as investors are more focused on the FOMC minutes that will be released later in the session.
Housing starts fell in January to a seasonally adjusted annual pace of 1.07 million units, in line with forecasts, compared to December’s 1.09 million-unit pace. Meanwhile, building permits fell to a 1.05 million-unit pace last month, below the 1.08 million expected and below December’s 1.06 million.
Industrial production also missed forecasts and rose 0.2% in January versus 0.3% expected, although it was an improvement from December’s drop of 0.3%.
Other data showed the change in price of finished goods and services (the Producer Price Index) decreased 0.8% in January from a 0.2% drop in December and more than the expected 0.4% decline.
The dollar dropped immediately after the slew of data, touching 119.12 yen, down from the European session high of 119.40. Focus now turns to the FOMC minutes of the 27-28 January meeting. Investors will watch the minutes closely to see if there was any bias towards tightening. The Fed will likely be the first major central bank to begin hiking rates later this year, with many expecting a June hike.
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