Despite a day dominated by the better than expected figures from the UK the USD made the largest gains in two weeks against JPY. This was a result of higher-than-forecast gain in U.S. industrial production, which was nicely complimented by companies’ earnings topping estimates, dampening demand for safety.
The Fed’s Janet Yellen was practically ‘dovish’ in her comments at the FOMC meeting, warning that despite the fact significant progress has been made, the FOMC does not expect fully to meet its goals of maximum employment and price stability until the end of 2016.
In contrast to the large gains seen against EUR from GBP the euro finished the day unchanged against USD. This is ultimately due to the better than expected ZEW Economic Sentiment report. EUR/USD is maintaining the support level of 1.3788 and is now trading around 1.3815. If we see EUR/USD breach 1.3850 analysts anticipate a jump to 1.3900.
In Canada the BOC maintained interest rates at 1%, which initially saw gains for CAD against USD. These gains were lost later in the day with a fight back from USD.
BOJ Governor Kuroda gave a speech at the close of Asia trading, confirming recent Bank of Japan meeting that QE will continue in Japan, but it will be driven by inflation targets and economic conditions. Recovery has been and is expected to continue to be moderate. JPY made gains on bullish Central bank comments, but these gains were lost throughout the day trading.
With the approach of the long weekend and usual market concern that the geo-political situation (Ukraine) could deteriorate over the period, many would normally see this as a reason to hold CHF, JPY and USD, though the it was notable that in spite of various reports of flashpoints, there was no evident safe haven flow yesterday.
The UK economy got a boost Wednesday when the jobless data rate was released at the five-year low. This was also complimented by the wage growth matching inflation for the first time in nearly four years. In turn Sterling reached monthly highs against EUR during trading on Wednesday posting 1.2163 and fresh two yearly highs against the USD of 1.6830.
In response to the better-than-expected data the Bank of England may have their hand forced to increase interest rates some time during the first quarter of next year. An interest rate rise in the UK would be in complete contrast to what is expected of the ECB, where potential further easing is expected. This could result in a potential push in GBPEUR (Euro Sellers time to hedge forward?). With traders trading more on currency fundamentals we may see movement towards GBP and an unprecedented strengthening.
GBPUSD reached 1.6840 in early trading this morning, Cable sat at 1.6775 pre-data release and closed above 1.68, a .5% increase on the day. Analysts are now touting 1.70 as the next target, we think a change in the consensus on interest rate hike timings will be needed for this. In the shorter term 1.6880 looks like todays resistance level to hit.