Sterling suffers after strong employment data

Today's Highlights

Sterling suffers after strong employment data

USD remains strong

FX Market Overview

There wasn't a lot of data yesterday but those items that were on the agenda were market moving. The fall in UK unemployment, fall in UK inflation and generally robust data elsewhere in the British economy have taken their toll on the Pound. The fact that all this data removes the Bank of England's interest rate hike imperative makes the Pound a less attractive place for investors to store wealth. In spite of that, BOE member Martin Weale repeated his calls for an early interest rate hike but no one knows why. It would be completely at odds with the Bank's remit of stable inflation and growth. And to add to this melee, the FTSE 100 Index delivered its sharpest drop in 16 months yesterday (more than 2.5% decline) after poor US economic data. Sterling has slowed its decline but the drop was quite dramatic.

US retail sales fell, business sentiment was down and the Federal Reserve's Beige Book was published but that has become synonymous with the words 'modest' and 'moderate'. That is how the Fed sees the US recovery. They will get some measure of that today with the US industrial Production data, weekly jobless claims, capacity utilisation data and some business sentiment and housing figures. That covers most sectors to some degree. We will also hear a whole slew of speeches from Federal Reserve members; so there is scope for a bit of volatility this afternoon. The US Dollar remains strong in spite of all of this because it is receiving support as a safe haven for investor funds.

European leaders are in the midst of strained relations with France and Italy. Both countries are likely to fall foul of the EU's budget constraints as they overspend rather than use austerity to control their budgets. Italian Prime Minister Matteo Renzi has prepared a budget which provides €18 billion of tax cuts in order to try to stimulate some sort of growth. Neither France nor Italy will get anywhere near the 3% budget deficit limit in the next few years and that will bring them into conflict with the EU commission. Today's highlights will be the EU inflation data and trade balance so we will wait to see if that can lift the beleaguered Euro.

A rise in New Zealand Consumer confidence and a decline in the value of the Pound have conspired to bring the Sterling - NZ Dollar exchange rate back to within a stone's throw of the psychologically important NZ$2.00 to the Pound. That'll be a very significant break if we fall below there. NZD buyers beware.

In other news, I loved the story of Nigel the British owned parrot who disappeared for 4 years and then returned to his owners. The odd thing was that Nigel had learned to speak Spanish in the meantime. His owner who is a Brit living in California, lost Nigel 4 years ago but was reunited when Nigel turned up outside a pet shop saying Hello to everyone. He has clearly been living with someone who knows a bloke called Larry because he keeps calling his name. I love a pet based mystery, don't you?