IFX Market Report
Thursday 22nd March 2018

Market Report

Data released yesterday morning showed UK average weekly earnings rose move than expected. In the 3 months leading up to January 2018, wages roses by 2.8%, the biggest rise since September 2015 and above both the 2.6% estimate and the previous reading of 2.7%.

Strong wage growth is critical for the Bank of England’s programme of raising interest rates and will help to offset the slight fall in inflation published on Tuesday and caused the pound rise to a six-week high against the US dollar.

Having struggled to remain above 1.40 on Tuesday, GBPUSD opened at 1.4030 on Wednesday and on the release of the wage data rose to a session high of 1.4070. After the Fed announcement in the US at 6.00pm, the pound found further strength hitting 1.4150, the highest since 2nd February.

GBPEUR opened at 1.1425, significantly, having held above 1.14 overnight, and rose to 1.1459 after the wage data, additional gains were seen in afternoon and the pair touched a 1.1480, the highest since 25th January.

The main focus today is the Bank of England’s monetary policy meeting at 12.00pm. It’s an almost foregone conclusion that there will changes made to policy today, but suggestions this morning are that there will be a strong indication at Governor Mark Carney’s press conference of a May rate hike. A May hike hasn’t yet been fully priced in, so this would probably help the pound further.

Worldwide News

In Europe, the Eurozone Manufacturing PMI reading for March fell to 56.6 from 58.6 in February was significantly lower than the 58.1 estimate.

The German Composite PMI figure also fell below consensus coming in at 55.4 versus 57 and down on the previous reading of 57.6.

The main event overseas was the conclusion of the Federal Open Market Committee meeting in the US. As widely expected the new Fed Chair Jerome Powell raised interest rates from 1.5% to 1.75%, marking the first US rate hike this year.

More significantly, the Fed did not signal a faster pace of rate hikes and only forecast two additional rises in 2018. Many investors had a bet on four hikes instead of three and the result was the US dollar was sold off heavily, the dollar index fell to 89.634.

EURUSD opened at 1.2279 and remained fairly flat through the whole European session, reaching a high of 1.2291. As the Fed released their statement in the evening, the euro pushed up to a high of 1.2349.