As reported earlier, today’s economic data releases from China and Germany helped to boost risk appetite and undermined the euro and Aussie. Investors figured there is still plenty of time before the ECB normalises its monetary policy, while the People’s Bank of China even decided to cut the reserve requirement ratio by 100 basis points for some lenders. Meanwhile economic news in the UK was also not great today, although it wasn’t too bad either. In fact, the mixed-bag data couldn’t stop the pound from extending its gains further against the euro. However, sterling fell back against the US dollar as the latter meanwhile attempted to make a comeback against her major rivals after several down days.
UK data mixed-bag
According to the ONS, Average Weekly Earnings were up 2.8% in the three months to February compared to a year earlier, unchanged from the previous reading. Earnings were expected to have risen to 3.0%, so this represents a disappointment. Excluding bonuses, however, earnings were up from 2.6% to 2.8%, which was in line with the expectations. Meanwhile, the rate of unemployment in the UK unexpectedly fell to 4.2% from 4.3% as total employment rose by a good 55,000. But a key leading labour market indicator, Jobless Claims, rose by 11,600 applications in March. This was nonetheless a touch lower than expected. The pound initially fell on the back of the mixed-bag data before rebounding against the euro ahead of the start of the US session.
US data beats expectations
The GBP/USD, however, remained downbeat as the US dollar attempted to make a comeback after US housing starts, building permits, industrial production and capacity utilization all beat expectations. Short covering helped to boost the US dollar against the euro, pound, yen and the commodity currencies. Gold, mirroring the EUR/USD’s price action, also fell, as too did crude oil, although the latter was due to calmer tensions in the Middle East. But at the time of this writing, both gold and oil were significantly off their worst levels. With the Syrian and Russian situations lurking in the background, the dips for oil and gold remain shallow – for now, anyway.
Investors eye UK CPI
Looking ahead to the rest of the day, there isn’t a lot in terms of top-tier macroeconomic data from North America. But we will have further key data tomorrow morning from the UK as the ONS publishes the latest consumer inflation figures. The headline Consumer Price Index (CPI) is expected to have remained unchanged at 2.7% in March while core CPI is seen rising to 2.5% from 2.4% previously. But after today’s soft wages data, could we see another disappointment in UK inflation figures?
GBP/USD may have formed near term peak
If the UK CPI comes out weaker than expected then the GBP/USD could ease further. After all, it does look a little overbought anyway, given its sizeable rally of late. In fact, from a purely technical analysis point of view, today’s failure to hold above the previous 2018 high of 1.4345 is a sign of potential weakness. A daily close below this level would create a potential false break reversal pattern. But it’s still early days; let’s see how things will develop as we head into the second half of the week. Indeed, there was a possibility that the cable would bounce from short-term support around 1.4295, which was being tested at the time of writing. But if in the coming days, the cable falls further and goes below the next support at 1.4225, then the bulls may get in real trouble. Alternatively, a daily close either today or tomorrow above the noted 1.4345 level would keep the bullish bias intact.
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