JPY Industrial Production remains strong
EUR French HICP hotter German in line
GBP UK unemployment surprisingly low
USD all eyes on Retail Sales
A much better than expected result in UK unemployment rolls sparked a small rally in the pound on an otherwise uneventful night in the currency markets. UK employment contracted by -5.7K versus expectations of a rise of 4K. Furthermore, data from the month prior was revised lower to -3.6K from 1.2K originally reported while average hourly earnings improved as well rising to 3.8% versus 3.7% forecast. Overall, the news was strongly bullish for the pound as it indicates that UK economy remains remarkably resilient and labor markets are tight. As a result the BoE may have to consider another rate hike at the beginning of next year. Cable immediately jumped 60 points higher to 1.9720 on the news, but then stalled at those levels for the rest of the morning London session.
The currency market continues to consolidate as both 1.3350 in the EUR/USD and 1.9800 in the GBP/USD remain formidable barriers with traders looking for the next fundamental trigger to move prices beyond current ranges. Yesterdays FOMC communiqué was taken as dollar negative by the market which frankly took us by surprise given the fact that the Fed maintained its tightening bias and hinted at the possibility of further rate hikes should inflation pressures mount. Several analysts pointed to the reference of substantial cooling in the housing market, but the Fed was merely relaying the facts on the ground, that even a mildly objective observer of the situation would have to have admit were true. More interestingly from our perspective was the repetition of the extent and timing of any additional firming may be needed ?. language which continues to suggest that the Fed could hike rates next year one last time
The Feds course of action will of course be dictated by the consumer and to that end todays Retail Sales will provide an important clue to monetary policy makers about the health of that crucial sector. If, as expected, the numbers show some signs of recovery in consumer demand, the greenback may finally be able to find a bid.
