Cable Retakes 1.2500 as UK Wages Grow

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Market Drivers April 12, 2017
UK Wages rise
USDJPY find support at 109.50
Nikkei -1.04% Dax 0.45%
Oil $53/bbl
Gold $1274/oz.

Europe and Asia:
CNY CPI 0.9% vs. 1.0%
GBP UK Average Earnings 2.2% vs. 2.1%

North America:
CAD BOC Rate decision 10:00

UK wage growth improved last month helping to fuel a small rally in the pound that took the pair above the key 1.2500 level in morning London trade today.

Overall the UK labor data was mixed with ILO unemployment rate remaining steady at 4.7%, but claimant count numbers jumping to a high of 25.5K from -3K projected. Sterling, however, benefited from rise in average wages which gained 2.2% versus 2.1% eyed. With markets highly concerned about the impact of inflation on consumer demand, today’s wage growth numbers came in as a relief that income continues to more or less keep pace with rise in prices.

According to ONS There were 31.84 million people in work, 39,000 more than for September to November 2016 and 312,000 more than for a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.6%, the joint highest since comparable records began in 1971.

With UK labor conditions relatively steady, cable should remain supported for the time being. So far the effects of Brexit have been negligible on the UK economy but the sharp increase in claimant count change may foreshadow some problems to come. If UK unemployment begins to creep up, the dual problems of inflation and joblessness will begin to weigh heavy on cable and the pair could drift lower once again.

In North America, the US calendar is barren but the market will pay close attention to the BOC rate announcement today. There is no expectation on any rate adjustments, but traders will listen for any clues that the central bank may be adopting a more hawkish posture in its monetary policy stance. With oil price comfortably above the $50/bbl level and with housing bubble in Canada in full bloom, the BOC may choose to signal a less accommodative posture which could help push USDCAD below the 1.3300 level as the day proceeds.

Boris Schlossberg
Managing Director

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