EUR/USD performed like GBP/USD, again opening near the high of 1.2516 but falling in the afternoon to touch a low of 1.2384. The pair corrected before closing at 1.2411 but has opened lower today following the FOMC press conference to trade at 1.2311.
Europe faced a fresh struggle against deflation in November as consumer prices across the 28 member states rose at the slowest pace in five years, just 0.3% from year earlier. With the recent fall in oil prices, European inflation is likely to fall further and could even turn negative next year. Wage growth measured by Eurostat as being moderate is unlikely to contribute to a pick up.
CPI figures in the US posted a 0.3% drop in November which was the steepest monthly decline since December 2008 and worse than the 0.2% fall that had been forecast. When excluding food and energy however the reading only fell marginally from 0.2% to 0.1% as economists had projected.
Last night at the FOMC press conference Janet Yellen displayed a hawkish sentiment in her forward guidance. The chairwoman of the Fed explained that a change in interest rates would be unlikely for the next “couple” of Fed meetings and that the committee was to be patient and remain flexible in order to respond to domestic and global economic developments as they progress. The US inflation forecast for 2015 was lowered in response to falling energy prices as were some members’ forecasts on interest rates for 2015-2017.
Wholesalers in Canada saw a fall in revenue from 1.8% to 0.1% where a smaller decrease to 0.9% had been expected. GBP/CAD currently trades at 1.8124.
Today we will be focusing on the German IFO Business Climate reading at 9am and unemployment claims from the US as well as the Philly Fed Manufacturing Index.
GBP/EUR opened Wednesday near the session low of 1.2566 but rose through the session to hit a high of 1.2639 before retreating to close at 1.2606. The pair has opened higher this morning and is currently trading at 1.2647.
GBP/USD started near the high of 1.5743 but fell to the session low of 1.5636 in the afternoon. Overnight the dollar took strength from the US Federal Open Market Committee press conference and drove the pair to the 10 day low of 1.5537. GBP/USD has opened this morning at 1.5577.
The Average Earnings Index showed employee wages rose at their fastest pace in two years this October reading 1.4% from the previous 1% where 1.3% had been forecast. Wage growth outperformed inflation, indicating a forthcoming improvement in British living standards. This is a key political issue leading up to the general election in May 2015 and a sustained increase in wages would provide a significant boost for the Conservative party.
The change in number of claimants also performed beyond estimates, falling 26.9K on the month against the previous reading of 25.1k. The forecast had been for an improvement by 19.5k. The unemployment rate however was unchanged at 6.0% where a fall to 5.9% had been expected.
The British consumer is set to stage a revival in 2015 with oil prices and borrowing costs falling as wages are rising. Economists predict the increasing consumption should help fend off political and economic risks in other parts of the global economy such as Europe, China and Japan.
No changes were seen in the voting by the MPC members for the Official Bank Rate or the Asset Purchase Facility as expected.