By Alex Edwards at UKForex, an international money transfer service
This week, UK Manufacturing and Industrial Production data both printed stronger than expectations, coming in at 1.0% and 0.9% m/m respectively for March. These were very impressive numbers and will serve to boost expectations for an early rate hike by the BoE, perhaps as soon as next spring, and certainly before the UK general election in May 2015. It’s data like this that will continue to lend medium-term support to the pound. In other ‘GBP-positive’ news, the IMF announced that they thought the UK economy would be the fastest-growing economy in the G7 this year and would grow by 2.9% in 2014, up from their previous estimates for 2.4% made in January.
In contrast, the US dollar weakened this week following the release of the much anticipated FOMC meeting minutes. They were more dovish than expected and failed to make any mention of Yellen’s comments last month that a “considerable” time between ending QE and the first Fed rate hike could be only six months. Moreover, the minutes indicated that members were not committed to hiking rates in the first half of 2015. There seemed to be additional disagreement among some officials about the amount of labour market slack in the economy. Meanwhile, getting rid of unemployment and inflation thresholds could make it more difficult for markets to interpret the impact of data going forward. Following the release of the minutes, GBP/USD traded to a high of 1.6819.
EUR/USD also rallied following the news and has continued to push higher since, supported by news of a successful Greek bond auction, where €3bn of 5-year bonds were issued at 4.95%, below the 5.25% target. Weaker than expected inflation data was largely shrugged off as investors paid closer attention to ECB rhetoric – the ECB and Bundesbank’s Jens Weidmann was speaking on CNBC this week and said that “we do believe that the deflationary risks are pretty limited.” The big 1.40 figure is now well in sight.
Arguably the best performing currency this week was the AUD. Not only did it react positively to the FOMC minutes, but it also benefited from the release of strong local employment data. The unemployment rate was shown to have fallen to 5.8% and 18,100 jobs were added to the economy in March. The details weren’t perhaps as positive as the headline suggested, though, as it turned out a large part of the jobs gains were driven by part-time employment. Despite this, AUD/USD siphoned through the 94 US cents level and traded to a high of .9460. It settled lower on Friday, as investors decided to take some profit on their long positions.
The focus next week will be on inflation data from the UK, US and NZ. Fed Chair Yellen will also be speaking on Tuesday and Wednesday. UK employment figures are released on Wednesday and will either boost or soften expectations for a BoE rate hike in early 2015.
Further reading: GBPUSD: Rallies, Remains On The Offensive
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