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Wednesday’s UK employment and average earnings data was disappointing. Although the UK unemployment rate fell to 6.8%, the claimant count and average earnings data printed below expectations at -25.1K and 1.7% respectively.     This quelled some growing and aggressive expectations for a rate hike from the Bank of England this year. However, these are only two weak readings amid a recent plethora of positive UK economic data.

The Bank of England Inflation Report was released  on Wednesday, too, and Carney left those expecting an early rate hike from the Bank of England a little disappointed. Growth and inflation forecasts remained largely unchanged from last time around. Carney referred to productivity still being low, with considerable slack in the labour market.

He went on to say that interest rates would only rise after the economy is back to “normal” and, contrary to the expectations of some commentators, did not directly signal when the first rate hike would occur.   In that respect, GBP/USD was sold off, but interestingly the bank didn’t signal any major discomfort with the high value of the GBP/USD exchange rate.   This could mean that 1.67/1.68 presents opportunities to buy GBP/USD, especially if we continue to see upside surprises to UK economic data over coming month.   A break above 1.70 still cannot be ruled out in the near-term.

By Alex Edwards at  UKForex, an international money transfer service

Meanwhile, the euro has been feeling the pinch, as rhetoric and expectations around an ECB rate cut in June gather momentum.   Earlier in the week, a report appeared in the Wall Street Journal which cited a good source saying the Bundesbank would back an interest rate cut by the ECB at the next meeting.   In addition, German ZEW (a forward looking economic sentiment survey) printed a lot weaker than market forecasts  on Tuesday, with the index coming in at 33.1 vs. expectations for 41.3, and falling for the fifth consecutive month.

Later in the week, an article by Reuters also reported sources as saying that an ECB rate cut was nailed on whilst European data, namely first quarter GDP, continued to disappoint.   EUR/USD fell to a low of 1.3650 whilst GBP/EUR came close to breaking through 1.23.

With the focus having been on what action the ECB will take next week, US data has come and gone.  It was generally mixed –  on Thursday, core CPI m/m beat expectations, rising 0.2% vs. forecasts for 0.1%. Unemployment claims and Empire State & Philly Fed Manufacturing also came in strong. However, Industrial Production, the Capacity Utilization Rate and NAHB Housing Market Index printed weaker than forecasts.   Fed Chair Yellen was also speaking this week and said that there was more to do to achieve a healthy economy.

Looking ahead next week, UK CPI is due  on Tuesday  and both Bank of England and FOMC meeting minutes are due  on Wednesday.   Later in the week, second estimate GDP is due from the UK, with European manufacturing PMIs following soon after –  important numbers as those expectations for an ECB rate cut gather pace.

Further  US data looking good, so why did the dollar drop? 5 reasons