British Pound Higher Following BoE Minutes, Employment Data

Updated: Our Live coverage shows the UK pound to be in a period of consolidation at the start of April 2014. With the March PMI series missing expectations the GBP has found little by way of impetus. However, all eyes are on the release of the Service Sector PMI on Thursday which should set the near-term tone.

Keep in touch with our Live Coverage Here. For the archived material for the day in question please scroll through please scroll down. 

By Gary Howes

Today's Agenda

For the pound exchange rate complex (Currency:GBP) 09:30 is packed with action:

09:30: Bank of England MPC Minutes - how did the MPC vote this month, was there any dissent?
09:30: Claimant count (Jan): Expected @ -25.0K. REALISED: -34.6K.
09:30: ILO Unemployment Rate (3M) (Jan): Expected @ 7.2%. REALISED: 7.2%.
09:30: Average Earnings excluding Bonus: Expected @ 1.2%. REALISED: 1.3%.

Then at 12:30 we get the UK budget. It is hard to say what could stimulate markets here, nevertheless we keep an eye on proceedings.

• Pound Euro Exchange Rate:
  1.2024
• Pound Dollar Exchange Rate:
  1.2532
• Pound Australian Dollar Exchange Rate:
  1.9231
• Pound Canadian Dollar Rate:
  1.7483
• Pound New Zealand Dollar Rate:
  2.1478
• Pound Rand Exchange Rate:
  22.7019

17:30: For GBP, growth in earnings is positive

A number of commentators have picked up on the growth in earnings, shown in today's labour report, as being key to today's solid UK unit. One of them is Omer Esiner at Commonwealth FX:

"The British pound bounced off of a one-month trough against the dollar and a three-month low against the euro after the U.K.’s jobs report painted a generally positive picture of the nation’s labor market. The nation’s unemployment rate held steady at 7.2% in January but the number of Britons claiming unemployment benefits declined by 34,600, slightly more than the 25,000 expected. Importantly however, average earnings in the U.K. rose by a higher than expected 1.4%(m/m) in February.

"Faster wage growth is inflationary and if continued, could prompt the BOE to begin tightening rates sooner than previously expected- a scenario that could help the pound rise above recent highs against the dollar and the euro. The minutes of the BOE’s most recent policy meeting added nothing new to the monetary policy outlook in the U.K."

15:58: Yellen is next risk event on the radar

Risk for the UK currency now shifts from the UK to the US where Fed Chair Janet Yellen will appear on the radar.

"Expect a rather choppy one with the FOMC meeting coming to a conclusion at 2 p.m. EST today. Look for 1.6665 to be a top for today’s trade, with 1.6585 to act as support unless there is a surprise packed into Janet Yellen’s first FOMC announcement as acting Fed Chairwoman," says Jonathan Terela at Western Union.

14:51: GBP-USD forecast for 1.7

This is the bullish viewpoint on Cable held by professional trader Christopher Lewis who believes sterling is taking a breather at present:

"Ultimately, I see the 1.70 level as being the target. I believe that ultimately we will go to the 1.70 level, but it will be more or less a choppy affair until we get above the 1.68 handle. There is a lot between here and there that could happen obviously, but ultimately the pair breaking above the 1.65 level was fairly significant on a longer-term perspective. With that being the case, I believe that if you are more of a longer-term trader that could be the potential set up that you’re looking for.

"I believe that buying small positions over and over is probably the best way to go with this market. Because sooner or later you will go higher and be able to enjoy the eventual move higher. The pullbacks going forward really won’t matter to me until we break down below the 1.63 level. With that being said, I believe that this summer should be really good for the British pound, and considering how well it has done against many other currencies, it does not surprise me that we are taking a little bit of a breather here."

14:03: EUR is the new safe-haven asset

Why is the euro so strong? A special note on the Euro has been published by UniCredit today. This is an interesting outtake:

"Latest evidence suggests that the EUR may be becoming a safe haven asset, which is likely to attract further inflows should emerging market portfolio outflows continue. This reflects a massive increase in confidence toward European assets which, as we show, started to take place alongside the compression of risk premia in the periphery of the Euro zone."

UniCredit have upgraded their euro forecasts for 2014. Those looking for higher GBP-EUR levels best take heed.

13:55: GBP-CAD to peak at 1.67 say RBC

The team at RBC Economics warn that the GBP-CAD will peak at 1.67 in the second quarter of 2014. It will slip back to 1.56 by the end of 2015. For the latest CAD forecasts please see our just-published piece on the matter.

12:39: UK budget underway

Highlights so far:

12:34: GBP-USD still bullishly aligned

"The recent setback doesn’t change the bullish picture as long as support holds at 1.6537. Resistance is at 1.6718 ahead of 1.6878." - UBS. More tech forecasts here.

12:33: Moderately positive on sterling

"We remain moderately positive on sterling longer term. Short-term, we need a technical sign that the current rebound in EUR/GBP has run its course." - KBC Markets.

11:45: Today's good news has the power to shift sentiment

"Although the technicals have been bearish over the past weeks, the supportive news out of the UK today has the power to reverse the trend in the Cable to bullish. Option offers are seen at 1.6650, option bids are to be tipped above 1.6685/1.6700 region. EURGBP pulled out our 0.83915 Fibo-target, yet failed to clear resistance above 0.84000. Waiting for more good news out of UK, traders continue seeing opportunity on the short side of the play." - Ipek Ozkardeskaya at Swissquote Bank.

10:47: The return of a bullish sterling, Bank of England not concerned with valuations

We have finally seen a turn-around in the fortunes of the UK currency with buyers returning to the unit right across the foreign exchange marketplace. The good unemployment data certainly helped. We also note that the Bank of England have not expressed concern with the value of the GBP, something that had a number of market players concerned ahead of the release of the March minutes at 09:30.

09:30: GBP powers ahead

A great outcome from today's data as shown in the above paragraph. The GBP recovery is underway, but will it have legs to really extend?

08:47: A new 1 pound sterling coin

The UK chancellor will today announce the release of a new 1 pound coin, touted as being the most secure in the world. It will have 12 sides, in keeping with the old threepenny.

The Treasury has said: “With advances in technology making high value coins like the £1 ever more vulnerable to counterfeiters, it’s vital that we keep several paces ahead of the criminals to maintain the integrity of our currency. The unit will be ready for release in 2017.

08:20: Today's news will be sterling-negative warn UniCredit

UniCredit Bank show their cards:

"We expect the jobless rate to inch lower to 7.1%, but the BoE minutes are likely to be on the dovish side, reflecting a potential division among MPC members on the amount of slack in the economy. There is a fair chance that the MPC may express some discomfort with further sterling rise. On balance, the news will be sterling negative, with cable trading below 1.65 and EUR-GBP above 0.84 again."

08:14: Potential GBP-USD upside?

More from Lloyds Bank Research, this time on suggestions that the UK unit could appreciate:

"GBP/USD has softened over the past few weeks, in line with the 2y relative rate spreads. The OIS curve shows market pricing for the first rate hike has been slightly pushed out in recent weeks, now pointing to April-2015. A decline in the unemployment rate today suggests rate hike expectations could be brought forward, which suggest potential for GBP upside."

08:13: Labour market data is key

"The labour market data provides the greatest potential to trigger GBP moves. Employment growth is expected to slow, and while the majority of forecasters expect the unemployment rate to remain unchanged after ticking up to 7.2% last month, our economists forecast a drop back to 7.1%." - Lloyds Bank Research.

08:08: Additional support for sterling

Kathy Lien at BK Asset Management says for the British pound (Currency:GBP) the employment numbers could prove supportive:

"According to BoE Governor Mark Carney who spoke yesterday, rates will stay low for some time.  This means the employment report will most likely have a larger impact on sterling than the BoE minutes. According to the PMI numbers, the labor market improved significantly last month, which suggests that jobless claims could fall by a larger amount, providing additional support to sterling."