Sterling Buoyed On King’s Comments

16 May, 2013

Simon Eastman

Yesterday the pound had a decent day which followed a few days of no data and volatile trading. We had unemployment figures, average earnings and claimant count data in the morning which showed some improvement in the jobs market. Those claiming job seekers allowance dropped by an additional 4300 people compared to an expected 3000 drop and the unemployment rate also came in lower than expected and lower than the previous month.

All this paved the way for sterling to make gains across the major currency pairs with pound/euro rates picking up nearly a cent from the previous day and similar gains against a broadly stronger US dollar. The Euro was also pushed lower by news France had officially gone back into recession and Germany posted a close to the mark 0.1% growth figure raising concerns that the Eurozone recovery will be a lengthier task.

The next key news was the Bank of England quarterly inflation report, which was to be current governor, Mervyn Kings last one before abdicating his throne at the Bank to Canadian Mark Carney in July. We have of late, been used to this being used as a platform for King to talk down the pound by lengthening growth expectations and talking of sustained high inflation. This time was different as he gave a more upbeat report, the first of its kind in years. He reported “Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. That’s the first time I’ve been able to say that since before the financial crisis.”

He made no mention of asset purchase so whether or not this is still in the minds of members is yet to be seen. King has in recent months been one of the “for QE” voters, but we will have to wait until next Wednesday to see how the vote went this month, when the minutes are released from the recent meeting.

This morning the markets open a little lower as traders look to another day of no UK data, so we would expect some correction from yesterday’s gains. Eurozone trade balance and inflation data could cause some volatility depending on the outcome and with a raft of US data out from lunchtime there is no doubt we could see some movement yet again. Will the US dollar continue its recent spate of strength and can the Euro make back its losses from yesterday. Stay in touch with the traders at Currency Index to find out.