Market Drivers February 15, 2017
UK Labor data misses on wages
USDJPY Stalls at 114.50
Nikkei 1.03% Dax 0.41%
Oil $53/bbl
Gold $1227/oz.

Europe and Asia:
GBP UK Avg. Earning 2.6% vs. 2.8%
GBP UK Unemployment 4.8% vs. 4.8%

North America:
USD CPI 8:30
USD Retail Sales 8:30
USD Yellen Testimony 10:00

UK labor data came in mixed today taking cable below the 1.2450 level in relatively quiet and uneventful early London session trade.

UK claimant count declined by a whopping -42K vs, 1,1K eyed but the figure was based on a new measuring method by the ONS and was ignored. Unemployment remained the same at 4.8% but the weak link in the data proved to be wages. Average wages declined to 2.6% from 2.8% eyed with the weakest growth in the private sector which saw the pace decline to 2.8% versus 3.2% the period prior.

UK economy now finds itself in the unenviable position of having stagnating wages but higher inflation which is likely to put further financial stress on households. Despite robust labor demand Markit Household Finance Index fell sharply to 42.5 from 43.6 the month prior in the worst drop in 3 years.

Clearly, UK consumers are having a difficult time keeping up with cost of living increases and their indebtedness is now highest in Europe. All of this makes it much less likely that the BOE will even consider tightening rates in 2017 as the economic conditions are less robust than they appear. Cable dipped to a low of 1.2420 but found buyers at that level and remained supported for the time being.

In North America today it’s day 2 of Janet Yellen testimony but the focus of the market will be on prior event risk as markets will get a look at Retail Sales and CPI data. Despite Ms. Yellen upbeat view of the US economy, the currency markets remained skeptical with USD/JPY failing to make it much past the 114.50 level, much less the key 115.00 barrier in overnight trade.

The fear in the market is that US growth is actually decelerating, with US consumer especially weak as wages fail to make much headway, which in turn could curb any spending going forward. Today’s US Retail Sales data could either confirm or refute that view. The market anticipates a rise in the core to 0.4% from 0.2% the month prior, but if the data misses its mark, USD/JPY could have a hard time climbing regardless of what Ms. Yellen says. On the other hand, if the news is positive it may just be the catalyst to push the pair towards 115.00.

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