The excitement driving the commodity currency complex has seemingly waned over the past 24-hours, with the Australian Dollar turning negative against the US Dollar over the past several hours of trading. The European currencies have remained buoyant in the wake of the disappointing US NFP report released on Friday as well; though it is the British Pound who continues to impress.
Today’s batch of UK economic data was roundly positive, noted by the three-month Unemployment Rate ending July falling to 7.7%, below the forecasted figure of 7.8%. The GBPUSD rose to its highest level in seven-months on the news, while the EURGBP fell to its lowest level since January after the report.
British Pound optimism has been warranted in recent weeks as nearly every single economic data print since late-May has meshed with the notion that the Bank of England would remain steady on its monetary policy course and move towards normalizing stimulus – ending QE. The thresholds for normalizing policy – a 7.0% Unemployment or inflation holding above +2.5% y/y by mid-2015 – both appear to be within reach sooner than expected.
UK yields have been the primary support for the British Pound, with the UK 10-year yield trading above and around 3.000% over the past week. At this point in time – similar to the US Dollar’s plight with US Treasury yields so elevated before the Federal Reserve’s September 19 policy meeting – is that a near-term ceiling may be been reached.
Going forward, the British Pound remains a strong fundamental play so long as the BoE stays on the sidelines. Governor Mark Carney expressed his willingness to pursue additional QE if UK yields jump and begin to weigh on economic growth; and if the BoE believes that higher interest rates are unwarranted, the Pound may have trouble extending its gains much further without a period of consolidation/profit taking.
GBPUSD 5-minute Chart: September 11, 2013 Intraday
Taking a look at European credit, slightly lower yields across the region – but for Portugal – have undercut the Euro on Wednesday marginally. The Italian 2-year note yield has decreased to 2.035% (-1.6-bps) while the Spanish 2-year note yield has decreased to 1.690% (-1.9-bps). Likewise, the Italian 10-year note yield has decreased to 4.510% (-1.9-bps) while the Spanish 10-year note yield has decreased to 4.469% (-3.1-bps); lower yields imply higher prices.
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ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
There are no significant economic data due out during the North American trading session today.
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— Written by Christopher Vecchio, Currency Analyst