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April

Sterling strengthens a little on wage growth

Published: Wednesday 18 April 2018

  • All-important US Beige Book awaited
  • Bank of Canada to leave rates on hold
​​By David Johnson

Sterling stronger but tentative as inflation data awaited
 
Tuesday saw the Pound spike and then consolidate. There was much excitement about the fact that average wage growth is, as expected, back above the Consumer Price Inflation (CPI) measure of consumer inflation. So, in real terms (such an annoying phrase) people’s disposable income is rising again after a 12 month hiatus. Mind you, the latest CPI data is due for release today, so Sterling slipped just in case the excitement was premature. The forecast for CPI inflation is around 2.7%, so the wage improvement gap is a narrow one, but may still be there by this afternoon. I should also mention that the unemployment rate is at its lowest since the late 70s. Considering all the negative forecasts for the UK over the last two years, that is truly remarkable.
 
Dull day for the Euro
 
The Euro had a very restful… almost languid day yesterday. The EUR-USD rate is stuck between 1.23 and 1.24 and the Sterling – Euro rate spiked when the UK data was announced, but fell back to within a fifth of a cent of its starting point by the close of play. We get construction sector data and consumer inflation data from the Eurozone today. Neither is expected to be market moving, however.
 
Big data for US today
 
US mortgage applications will be released later on and the Federal Reserve’s Beige book is due for publication today. That regional view of the US economy is a good bellwether for the upcoming Federal Reserve interest rate setting committee meeting; the Beige Book forms part of the agenda. As with all central bank info, what the markets want can be boiled down to (1) when are interest rates and Quantitative Easing (QE) going to change? (2) by how much? The Beige Book may point to hints of that.
 
Good news for Canadian Dollar buyers
 
Speaking of central banks (you see, contrary to the views of many, this report is planned… a bit!) the Bank of Canada is due to make its interest rate announcement today. No change is expected from their 1.25% base rate.  As with many other GBP based exchange rates, the GBPCAD rate is back at levels we haven’t seen since the immediate aftermath of the Brexit vote, albeit below the pre-vote peak. Nonetheless, it is a good level for CAD buyers and, if Sterling gets any more support, this level may well be looked back on as a good level for CAD sellers too.
 
Could be good news for Australian Dollar overnight
 
The Australian Dollar, which has been a little weaker of later, could well strengthen overnight. It is expected we will see a drop in the Australian unemployment rate from 5.6% to 5.5%. In most economies, anything around 5% is seen as a measure of almost full employment. You will never match all the vacancies with appropriately skilled workers, so there is always a small gap. Nonetheless, that would be positive for the Aussie Dollar and will shunt the Reserve Bank of Australia (RBA) a little closer towards an interest rate hike.
 
No stars on TripAdvisor

And a bride-to-be visited a restaurant in Kent to arrange her wedding reception, but I think we can surmise that she didn’t get on well with the staff member she met there. There appeared to be some confusion over the viewing date because she was not expected, but it sounds like the surprised staff member took her on the tour anyway. We can deduce that they didn’t get along because the staff member later inadvertently sent a message to the bride-to-be which was intended to go to someone else. We can deduce this because the message was a short sharp, ‘Well, she’s a cow!’. The TripAdvisor review is not good.
Apocryphal… but sweet
 
At a check in desk in a UK airport, a ‘reality TV star’ is pushing for an upgrade. The staff behind the desk are not budging and the man is holding up the queue and getting angrier by the moment. He finally resorts to the age old line of “Don’t you know who I am?” At that point the check in clerk says, “Wait a moment, Sir.” The guy finally thinks he is getting somewhere and puffs out his chest as he looks back at the queue of people behind him until he hears the Tannoy sound boom across the terminal, “Bing bong. Ladies and gentlemen. There is a passenger at the check in desk who appears to have forgotten his name. He is in a black T shirt and sun glasses and carrying a copy of a Louis Vuitton bag. If anyone can identify him, please make yourself known to a member of the check in crew.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Consumer Price Index 2.7% 2.7%
GBP 09:30 UK: Core Consumer Price Index 2.4% 2.5%
GBP 09:30 UK: Retail Price Index 3.6% 3.5%
EUR 10:00 EU: Final Consumer Price Index 1.4% 1.4%
EUR 10:00 EU: Final Core Consumer Price Index 1.0% 1.0%
CAD 15:00 Bank of Canada Overnight Rate 1.25% 1.25%
CAD 15:00 Bank of Canada Rate Statement    
CAD 15:00 Bank of Canada Monetary Policy Report    
CAD 16:15 Bank of Canada Press Conference    
USD 19:00 US: Beige Book    

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