Pound Rises as Average Earnings Increase
The Pound rallied against the US Dollar and the Euro as data released by the Office for National Statistics showed that average weekly earnings, excluding bonuses, rose more than expected in the three months to October. However, real wages in the UK are still shrinking, since data published yesterday showed that inflation stood at 3.1% in November. The ONS survey noted that the number of employed people in the UK fell for a second consecutive month.
In the US, all eyes are on the Federal Reserve meeting. The Federal Open Market Committee (FOMC) is going to announce its decision on interest rates. Experts are almost certain that the FOMC will decide to raise borrowing costs by 0.25%. In the Eurozone, industrial production rose more than expected due to the demand for non-durable goods.
Pound Sterling – UK Markets
Today, the Pound rallied against the US Dollar with the exchange rate set at $1.33. Sterling also edged up against the Euro with the exchange rate set at €1.13. The ONS published a series of data regarding the unemployment rate, average earnings and claimant count change number.
According to the ONS, average earnings, excluding bonuses, rose by 2.3% in the three months to October, surpassing expectations and sending a positive signal after a series of poor readings over the last few months. The survey also showed that average earnings, including bonuses, increased by 2.5% in the same time period. Despite the good result regarding average earnings with bonuses excluded, real UK wages are still shrinking as inflation in the UK stood at 3.1% in November.
The UK’s unemployment rate rose in the three months to October to 4.3%, missing expectations as analysts had forecast that it will remain stable at 4.2%, which was the lowest level in the last four decades. According to the ONS statistics, employment rate fell for the second month in a row with 56,000 fewer people working during the June-October quarter. Analysts noted that this is the biggest recorded drop in employment since May 2015.
US Dollar – US Markets
The US Dollar edged lower against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY), which measures the strength of the Dollar against six major currencies, remained stable at 94.04. The big news for today is the start of the two-day Federal Reserve meeting.
In the evening, the Federal Open Market Committee (FOMC) will announce its decision on interest rates. Investors and traders have already priced in a 0.25% hike. Westpac’s economists believe that the decision is justified as GDP continues to grow above-trend and labour market strengthens. Lloyds Bank analysts stressed in their report that the most interesting part in the FOMC’s statement will be any potential signals for the Fed’s monetary policy during 2018.
Donald Trump suffered a severe blow yesterday when Alabama’s Republican candidate for a seat in the US Senate, Roy Moore, lost in the election by Democrat Doug Jones. This was the first time in the last ten years that a Democratic candidate won any state office in Alabama, which is considered one of the Republicans’ strongholds. Jones’ victory reduced the Republican majority in the Senate to 51-49, a factor that makes more difficult the passing of the tax reform bill. The President congratulated Jones, but he said that the Republicans will get another shot at that seat in a very short period of time.
Euro – European Markets
The Euro inched higher against the US Dollar with the exchange rate set $1.17. Eurostat released data regarding industrial production and employment change in the Eurozone during the month of November.
Industrial production in the Eurozone during October expanded by 3.7%, on an annualised basis, surpassing analysts’ expectations. On a monthly basis, industrial production rose by 0.2%, instead of remaining flat as markets had been anticipating. The increase in industrial production was attributed to the rising demand for non-durable goods. Employment change in the third quarter of 2017 rose by 1.7%, on an annualised basis.
In Germany, inflation in November stood at 1.8%, on an annualised basis, in line with market expectations. On a month-to-month basis, inflation rose by 0.3% as it had been anticipated. The German wholesale price index came in a bit lower than expected at 3.3%, on a yearly basis. In Italy, industrial production in October expanded by 3.1%, on an annualised basis, which was lower than the analysts’ forecast for a 3.4% figure. A Bloomberg report suggested that the Italian GDP growth will drop from the current 1.5% to 1.3% during the next year.
Other Currencies – Highlights
Sterling gained ground against the Australian Dollar, trading at 1.76 AUD. Philip Lowe, the Governor of the Reserve Bank of Australia (RBA), described the fascination with cryptocurrencies as a “speculative mania.” Lowe expressed the opinion that cryptocurrencies won’t be commonly used for everyday payments. In his remarks, he stressed that electronic banknotes could threaten financial stability and lead to bank runs.
The Pound surged against the New Zealand Dollar, trading at 1.92 NZD. Jacinda Ardern’s government moves forward with its plan to get a ban on offshore based buyers of existing houses in place by early next year. Ardern has said that the target is for house prices to be set by New Zealand citizens and not by international buyers. Legislation to ban overseas buyers is going to be introduced into parliament tomorrow with members of the government saying that residential housing will be categorised as “sensitive” under the Overseas Investment Act.
Sterling strengthened against the Norwegian Krone, trading at 11.12 NOK. According to TDS analysts, even if Norges Bank pulls its rate hike forecast forward this week, the Krone won’t get boosted since liquidity will be deteriorating until the end of the year.