Market Drivers February 18, 2015

Better labor data and strong MPC minutes lift cable through 1.5400
BOJ maintains policy at status quo
Nikkei 1.18% Europe 0.83%
Oil $53/bbl
Gold $1208/oz.

Europe and Asia:
JPY -BOJ maintains QE targets
GBP UK labor -38.6K vs. -25.2K
GBP MPC 0-0-9

North America:
USD PPI 08:30

CAD Wholesale Sales 08:30

USD FOMC Minutes 14:00

The British pound was the star of the European session today bursting through the 1.5400 level on the back of much better than expected labor data and relatively hawkish MPC minutes.

UK claimant count showed another string decline to -38.6K from -25K eyed while the data for the month prior was revised lower from -29.7K to -35.8K. The unemployment rate also declined, dropping to 5.7% from 5.8% forecast. Average hourly earnings rose 2.1% versus 1.7% expected but ex-bonus the gains were much tamer at 1.7% versus 1.8% expected and were the only disappointing data point in the whole release.

Overall the UK labor data clearly showed that the jobs engine is working well as the economy continues to expand at a steady pace strongly outperforming the European continent. The MPC minutes reflected that optimism all members stating that rates will likely rise over the next three years. Although the swap markets still remain sceptical about any rate hike in 2015, the expectations have clearly tightened with markets now anticipating a rate hike in Q1 of 2016 rather than Q3.

If the market continues to believe that BoE will be second to tighten, as it follows the Fed’s lead cable will continue to outperform its trading partners. The pair has made a strong recovery from the 1.5000 level as UK data continues to surprise to the upside as the start of this year and if the economic momentum persist sterling could be targeting 1.6000 by summertime as rate expectations turn progressively more hawkish.

Elsewhere, the BOJ presser offered nothing new with governor Kuroda sticking to the script and stating that the scope of the QE program will remain unchanged for now. The Japanese monetary officials are clearly pleased that deflation is starting to wane although overall growth remains patchy. Still the pickup in activity shows that the Japanese economy is on the right course.

USD/JPY has generally traded well today holding above the 119.00 level but any push above 119.50 may have to wait for today’s FOMC minutes as markets try ascertain the Fed’s timetable. If the minutes hint that the Fed may be ready to normalize as soon as this summer, the pair could get a push towards the key 120.00 mark as the day proceeds.

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