Euro Gets Pounded as UK Wages Spike

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Market Drivers September 16, 2015

UK wage data much better GBP targets 1.5400
US CPI on tap
Nikkei 0.81% Europe 1.19%
Oil $45/bbl
Gold $1106/oz

Europe and Asia:
GBP UK Average wages 2.9% vs. 2.5%
GBP UK Claimant Count 1.2K vs. -5.1K
GBP Unemployment rate 5.5% vs. 5.6%

North America:
USD CPI 8:30

USD NAHB 10:00

UK labor data, especially wage gains, printed much better than forecast sending cable through the 1.5400 level in morning London dealing. The much stronger than expected wage gains surprised the market which has been generally bearish the pound going into the release.

The Average earnings index for 3 months rose to 2.9% from 2,5% anticipated and 2.4% the month prior, jumping to its biggest gains in more than 5 years. The data shows that labor markets in UK are clearly tightening and employers must now hike wages to entice workers. All of which suggests that the BoE may consider normalizing policy sooner rather than later.

Aside from the wage data, other employment news from UK was mixed, with unemployment rate coming down to 5.5% from 5.6% but the claimant count rising to 1.2K from -5.1k anticipated. This was just the second time in nearly two years that claimant count rose and therein lies the danger of becoming too bullish on the pound.

Although the wage gains tonight were impressive, other recent data from UK including the PMI readings have actually missed their mark showing a slowdown in the economy. The rise in wages may simply be a lagging indicator of pent up income demand and if the overall growth in UK does not pick up BoE may be reluctant to act under such conditions.

Still for tonight the markets are giving the benefit of doubt to cable bulls with the pair holding above the 1.5400 level into late morning London trade. In addition cable is also benefitting from positive M&A flow as AB InBev is exploring to buy rival SABMiller. The gigantic merger of two of the biggest beer producers in the world could create a company in excess of 300 Billion in market cap and would create massive EUR/GBP flows were it to be executed. EUR/GBP therefore lost nearly a penny off the session highs as traders maneuvered ahead of the deal.

Elsewhere the markets were generally quiet, though the gains in commodity dollars that we highlighted two days ago, continued with Aussie moving towards the 7200 level while kiwi went to 6377 before receding off the highs. The commdollars are continuing to form base and could extend their gains if the Fed holds still as short term carry trade flows would likely lift them higher.

In North America today the calendar is generally quiet with only the US CPI data on the docket and NAHB housing report due at 1400 GMT. The markets are likely to continue treading water ahead of tomorrow’s Fed presser with cable continuing to outperform for the time being.

Boris Schlossberg
Managing Director

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