Solid UK data prompts Sterling rally. USD dips with dovish comments from Yellen.

Tom Tong14/Νοέ/2013Currency Updates


Champagne popping at the BOE yesterday. Mark Carney led the cheer as the MPC danced to the melody of yet more positive data for the U.K economy. Sterling popped half a cent against both the greenback and euro. The ever smug chancellor George Osbourne summarised that «more jobs, fewer unemployed and lower inflation all very welcome. Economic plan is working, but there is still a long way to go». Both the MPC and Osbourne deserve props for efforts to promote growth. Although controversial the majority of policies seem to be working.

Across the board we saw a sweep of positive data. Unemployment dropped to the lowest level since 2009 and we are now at 7.6%. The number out of work fell 48k to 2.47M in the three months to September. The claim numbers for jobseeker’s allowance came in at 1.31M, a 47k fall from last month and the biggest drop since 1997. The claimant count has now fallen 12-months on the bounce as Britons across the country return to work. Unemployment hitting 7% still remains the key for the BOE to consider altering monetary policy and raising interest rates.

The solid data led the BOE to a bullish stance on UK growth. The BOE feels the economy is recovering so quickly that it is likely to consider raising interest rates as early as Q4 next year. This is a drastic reversal of previous expectations and 18 months earlier than the BOE initially called. The BOE view now holds a parallel to the wider market who had already priced in a move. In yesterdays quarterly forecast the MPC said there was a 50/50 chance that unemployment would drop to 7% in Q4 next year.Ultimately the BOE report scripts a rosy outlook for U.K growth. If rates change next year the BOE will be the first central bank worldwide to start normalising monetary policy post recession.

BOE growth forecasts are very encouraging. It expects the economy to grow 1.6% this year and 2.9% next year and BOE intends to enhance forward guidance over next year.

Only data of note out of the UK today is retail sales.


A mixed day for the Euro with the currency up against the Dollar and down against Sterling. There was only Euro industrial production and Spanish CPI released so the Euro had little to feed off. Industrial production came in lower then the 2% expected and we saw a figure of -5% as a result. The market seemed to be waiting for today with a big day for the Euro with significant macro data out.

Germany continues to review its economic role in Europe and tries to decide how much of a role it wants to play. The ECB continues to charm Germany, as the strongest economy and a leader in monetary policy and wants the country’s contributions to remain the same.

EU negotiators finalised a deal on the 2014 budget. Although it was not without internal disputes, the market generally feels it makes sense. Spending will be cut by 6% with an attack on youth unemployment which is too high and the last thing the eurozone wants is idle and disenchanted youth. Not only does this curtail long term growth prospects but also it shackles productivity and innovation as the ambitious and talented will leave the eurozone to work elsewhere. Data out of France yesterday revealed the economy contracted 0.1%. With previous figures coming in high this is not overly concerning and therefore we saw little response from the markets.

Big data out of the Eurozone today with Euro GDP figures MoM and YoY and we also have the ECB monthly report and Greek unemployment rate.


The greenback was under sustained pressure yesterday and fell against both the Euro and Sterling. It was weighed down by dovish Fed comments, it also took a beating against the pound with Sterling taking leverage across the board after solid UK data. On the flip side of the market US equities traders had a great day with the S&P and Dow closing at record highs.

With the spotlight on Yellen for the first time, she did not disappoint with a clear difference in tone compared to Bernanke. Clearly she is still very dovish, suggesting the Fed might not be close to scaling back QE and introducing tapering into monetary policy. Yellen stressed the U.S jobless rate is still too high and both the labour market and economy were playing far short of potential. The dollar index fell to 1-week lows. Asian trading saw the dollar fall slightly further against both the Euro and Sterling, London opened this morning with the pairs bouncing around resistance levels. Everybody is asking themselves when is the FED likely to begin tapering and how dovish is Yellen. Yesterday provided an answer to the former – clearly Yellen is very dovish, the latter is when we will see worldwide currency pivots. Most in the market are expecting the FED to taper in Q1 2014, a taper in the December meeting is still possible although with only one NFP release left this year and a taper tied to unemployment levels, NFP would have to come in at fairly spectacular highs.

Data release of note out the US today includes- continuing jobless claims, trade balance and Non-farm productivity.


Written by Tom Tong

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