The pound strengthened substantially on Tuesday against both the euro and the US dollar, as a report showed a bigger-than-expected rise in UK industrial output in February.
By Peter Martin
Tuesday, April 8, 2014
British industrial production surged 0.9% in February, picking up pace from the 0.1% expansion seen in the month prior, and well above the 0.3% increase that was the consensus estimate from a Reuters survey of analysts. That included a 1.0% month-on-month jump in manufacturing, the third successive monthly expansion in manufacturing output, which takes the yearly change to +3.8% and means this is looking like a very strong quarter for the sector.
The Bank of England’s monetary policy committee (MPC) meets this week, with an announcement on their decision for their benchmark interest rate due on Thursday; while the consensus of expectation is that no change will be made, the strength of this latest report has added weight to speculation that the MPC will act to tighten sooner rather later, boosting the pound. By late morning in New York on Tuesday, GBP/USD had risen 0.8% to 1.6740, while the pound hit a one-month high against the euro.
The pound is not the only currency that the dollar has weakened against today, though, with the dollar basket sliding 0.6%. USD/JPY fell close to 1% after the Bank of Japan left its benchmark rate at close to zero. Though the central bank’s decision to make no rate change was widely expected, the lack of any additional stimulus measures or any hint of when such action might occur from Governor Haruhiko Kuroda has served to support the yen.
In fact, Mr Kuroda sounded fairly upbeat in his post-decision comments. ‘The Bank believes the positive cycle in the Japanese economy will not be stopped and the economy will continue to recover moderately,’ he said, adding that he was not considering further stimulus ‘because the economy is steadfastly moving towards reaching the stable 2.0% inflation goal and that I don't think there is a need for additional easing measures.’
After a tough trading session on Monday that saw share prices tumbling, Wall Street bounced back modestly on Tuesday, with the Dow Jones Industrial Average up 0.28% or 45 points at 16,290 towards the end of the morning in New York, while the S&P 500 index gained just 0.20%. Investors are braced for a flood of quarterly earnings reports, with the reporting season unofficially beginning after the market on Tuesday with Alcoa. It will be interesting to see how the economy has been faring at the granular level of company by company after macro data was hindered in the first quarter by adverse weather conditions. A significant portion of S&P 500 companies have been lowering their guidance, with first-quarter earnings for the index expected to be down more than 1%, according to FactSet, suggesting this winter’s extreme weather has already lowered hopes.
A report from the Labor Department today provides some evidence of improvement in the jobs market. The Jobs Opening and Labor Turnover Survey (JOLTS) showed 4.173 million jobs openings on the final business day of February, up substantially from the 3.874 million openings in January and above the high end of expectations. One piece of evidence of slack in the labor market cited by Fed Chair Janet Yellen in a speech last week was the number of people who voluntarily quit their jobs being noticeably lower than pre-recession levels. This report shows no improvement here, with the quits rate remaining steady at 1.7% for non-farm (1.9% for private employment and 0.6% for government). On this basis, the report could provide ammunition to doves at the Fed arguing to sustain accommodative monetary policy for a long spell.
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