US wages not keeping pace with market growth
UK industrial production rose 1.3% in January, reversing the decline in December as oil output increased; however, the data was slightly weaker than forecast while the trade deficit widened slightly and construction production fell.
The National Institute of Economic and Social Research (NIESR) forecasted GDP would grow by 0.3% in the year to February, down from 0.4% at the last estimate. The Euro was unable to regain 1.1235 against the Pound and Sterling held close to 1.3850 against the Dollar with strong risk appetite an important supportive factor. The latest CFTC data recorded bets on the Pound appreciating were at a three-month low amid cautious sentiment.
The Pound has struggled to make headway this morning amid reports of a weak print for February consumer spending. Sterling opened at 1.1247 against the Euro and 1.3872 against the Dollar.
The February gain in US Nonfarm payrolls up to 313,000 was much stronger than consensus forecasts of 200,000 and the fastest rate of growth for 18 months. Although the unemployment rate held at 4.1% compared with expectations of 4.0%, there was a surge in reported employment of over 700,000 as the participation rate increased significantly during the month. The average increase in hourly earnings, however, was held to 0.1% which cut annual growth to 2.6% from 2.9% previously.
The very strong employment increase boosted confidence in the growth outlook while subdued hourly earnings growth eased inflation fears. In this context, there were mixed influences on the Dollar as the wages data curbed any upward pressure triggered by the strong payrolls release. There was little net impact on Fed Fund futures amid very strong expectations of a March rate hike. Chicago Fed President Evan welcomed the employment gains but remained cautious surrounding inflation while Boston head Rosengren stated that four hikes were likely to be needed this year.
In light of the European Central Bank’s (ECB) comments that an interest rate hike is unlikely to happen before the winding in of the asset purchase programme, which is now expected to happen at the end of this year, new source reports from the ECB suggest a rate increase will be left for around mid-2019. Further, council member Lane remarked how the central bank is stretching to the limits of its current policy.
Latest CFTC data showed a small decline in long Euro positions, holding the risk of fresh long liquidation. The Euro lost ground against its rivals on Friday as the single currency closed at 1.1250 against the Pound and 1.2307 against the Dollar.
This week, Wednesday will be watched closely as Draghi is giving a speech following German inflation readings with Friday hosting Eurozone Consumer Price Index data.
Data to watch:
24h EUR Eurogroup meeting
23:45 NZD RBNZ Governor Grant Spencer speech