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This Week: AUD/USD Hits Three-Month High, UK Wage Growth Struggles

16 February 2017 by News Desk

The Australian dollar has spent this week generally climbing against the euro and pound while managing to claim a three-month high versus the US dollar, say industry experts FC Exchange. However, Thursday’s European trading saw the Aussie dollar retrace some of its gains against all three currencies.

Australian Dollar Breaches US77 Cents

The Aussie dollar has been able to break through the key level of US77 cents versus the US dollar this week following an increase in both risk sentiment and commodity prices.

However, the Australian dollar showed a tepid response to favourable employment data this week after investors dug deeper into the stats and discovered the rise in workers was accredited to part-time roles.

The Australian unemployment rate ticked lower to 5.7% from 5.8% in January as 13.5k new positions were created, beating the 10.0k forecast. Furthermore, December’s reading was positively revised from 13.5k to 16.3k. However, as favourable as it sounds, when investors examined the details it became clear that the nation actually lost 44.8k full-time positions and the part-time sector added 58.3k jobs.

The increase in part-time employment could cause wage growth to drag as well as restrain incomes.

British Pound Reacts to UK Inflation and Wage Growth Data

The pound had an exciting week with both UK labour market and inflation data surfacing. The UK Consumer Price Index (CPI) came in at 1.8% in January, rising from the previous month’s 1.6%. Wednesday’s European session saw the UK create 37k jobs in the three months through December which held the unemployment rate steady at 4.8%. However, wage growth struggled in the same time period coming in at 2.6% following the previous 2.8% reading.

Rachel Smith, Principle Labour Market Economist at the Confederation of British Industry (CBI) commented on the news, saying: ‘Pay growth remains stubbornly sluggish, which is a concern giving rising inflation. There are tentative signs that productivity is picking up, but there is further to go before it can underpin faster wage growth. Companies will look towards the Budget to see adjustments to business rates along with measures to boost educational performance, helping firms to drive faster productivity growth.’

Lethargic wage growth is likely to see the Bank of England (BoE) keep interest rates on hold for longer, which will offer little support to the pound.

Germany Under Attack for ‘Exploiting’ Euro Exchange Rate

Meanwhile, Germany has had an interesting week with Frank-Walter Steinmeier being elected as the country’s new president by an overwhelming majority. Investors in the single currency will now look towards September to see if Angela Merkel will be able to hold her title in the general election – an event which is likely to impact the EUR exchange rate significantly.

The European Central Bank released dovish minutes from it’s January 19th meeting in Thursday’s European session, stating the institution needed to maintain a ‘steady hand’ to reassure markets. The ECB also stated it should look through the current surge in inflation as rate setters believe the increase in energy prices is temporary and hasn’t bolstered the value of other goods.

The minutes stated: ‘The Governing Council was seen as well advised to remain patient and maintain a ‘steady hand’ to provide stability and predictability in an environment still characterised by a high level of uncertainty. The recent increases in energy prices had thus far not translated into indirect or second-round effects on broader inflation.’

Investors in the euro will be interested in next week’s German manufacturing, services and composite purchasing managers’ indexes (PMI’s) as the powerhouse nation of the economy has been accused of exploiting the single currency for it’s own gain. One of President Trump’s advisors and French political front-runner Marine Le Pen have both accused Germany of using the euro to weaken other nations for it’s own benefit. As French elections draw closer, the EUR exchange rate is likely to experience extreme volatility.

USD Exchange Rate Supported by Fed Yellen’s Hawkish Comments

Federal Reserve chief Janet Yellen offered the greenback some support in Stateside trading this week as she hawkishly stated that the central bank would be looking to hike rates again in the coming months.

Yellen stated: ‘Waiting too long to remove accommodation would be unwise, potentially requiring [the Fed] to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. At our upcoming meeting [we] will evaluate whether employment and inflation are continuing to evolve in line with expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.’

The US dollar has also received some support on news that President Trump will be making an announcement in coming weeks regarding tax. Those watching the buck exchange rate will be interested to hear Trump’s plans as the event could give the USD exchange rate a boost if investors deem the reforms worthy.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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