FX round-up: UK data fails to help sterling higher, greenback up for second day, North Korean concerns lurk
(ShareCast News) - The US dollar was up for a second day this week against a basket of currencies of its main trading partners, with the dollar index trading 0.55% higher to 92.391 by 1720 BST.
This came in the wake of a data release that showed producer prices month on month increased 0.2% after slipping 0.1% in July.
Karl Schamotta at Cambridge Global Payments said,"Historically speaking there is no extremely high correlation between the producer prices and consumer prices," adding, "The tail does not wag the dog."
Here in the UK, Wednesday saw a drop for the average earnings over the last three months at 2.1%, missing expectations of 2.3%. This is a key figure the Monetary Policy Committee (MPC) at the Bank of England (BoE) to consider when deciding to hike interest rates.
With inflation running at 2.9%, above the 2% BoE target, this is when we would expect to see an increase in rates, but with real wages not keeping track, it keeps the MPC between a rock and a hard place.
Ranko Berich, head of market analysis at Monex Europe said, "The BoE is in an unenviable position heading into tomorrow's MPC meeting, given that inflation is above target but the latest wage and investment data show that the economy is hardly going through a demand-driven boom that needs an immediate monetary response."
Sterling traded 0.37% lower against the dollar on Wednesday to 1.3237 and saw heavy selling after the release of the figure. Along side average earnings, the Office of National Statistics (ONS) released the claimant count figure and unemployment rate, both beating expectations at, coming in at -2.8K and 4.3% respectively. UK unemployment has been falling steadily since the start of the year where it was at 4.8%.
"We're seeing a little bit of a pullback in the pound and could see some weakness in the short to medium term," said CMC chief markets analyst Michael Hewson. "But ultimately what it (wage data) does do is shift the focus to tomorrow's BoE meeting and really, the big question is how concerned is the central bank about a 2.9 percent inflation rate."
Against the euro, the pound put up a "sterling" performance to trade 0.08% higher to 1.1110, with the single currency very much on the backfoot for the day as it fell a significant 0.61% against the US dollar to 1.1895, after trading just shy of the 1.2000 mark in the morning.
The European Central Bank (ECB) is highly anticipated to address recent euro strength and its weigh on European exports in October, where market observers are expecting some sort of tapering to the 80 million euro monthly bond buying programme.
Safe haven currencies fell out of favour again on Wednesday with USD/JPY up 0.45% by the London close to 110.67 and the USD/CHF also up 0.45% on the day to 0.9649.
This came despite North Korean rhetoric that it is planning to accelerate its nuclear programme in response to new sanctions approved by the UN Security Council on Monday.
Over in the "Great White North", the Canadian dollar saw some weakness against it's US counterpart, with the pair trading slightly higher on the day to 1.2195, up 0.07% after buying interest was seen at support of 1.2137, the low seen on the 6 September after the interest rate increase from the Bank of Canada.
The Canadian dollar has rallied more than 13% against the U.S. greenback since early May and touched its strongest in more than two years on Friday.
The price of oil, one of Canada's major exports, rose after the International Energy Agency (IEA) said the global oil surplus was starting to shrink due to robust demand and an output drop at major producers.
Looking ahead, Thursday may prove to be the most volatile day this week so far with North Korean risks simmering in the background, as well as key releases form the US including inflation and employment figures, and also policy statements from the Swiss National Bank and Bank of England.