I’m going to start off with Friday night’s economic data then move on to what I think is the sleeping giant of currency movements going forward. First up we had Chinese Industrial Production YoY and MoM that was in line with forecasts. Retail Sales, how the consumer is travelling in China, showed a marginal expansion, that is they are buying a little more than they were last month, great for localised businesses, great for importers.
Euro zone Consumer Price Index, a gauge on how Inflation is tracking in the largest economy in the Euro zone, Germany, as with the Chinese data came in line with analysts’ expectations , 0.6% YoY and -0.3% MoM .Employment over the whole of the Euro zone grew slightly ,with a reading of 0.25 compared with -0.4% from the previous month .
I’d like to make an analogy. If your trousers are on fire, you can only ignore it for so long. The higher up the flames go, the more you are given no choice but to act to put those flames out. We have a similar situation with the Pound Sterling, Australian Dollar cross and the UK economy. Over the last couple of months we have had strong economic data out of the UK. In fact, when you look at the strength of the data that has come out, “strong” may very well be an understatement.
Employment has been increasing at a staggering rate, in fact in the last month alone we have had 75 Thousand new jobs added. The UK Unemployment rate has been falling in tandem with the new jobs added, most recently posting a figure of 6.6%. The manufacturing sector has been steadily expanding and inflation has been keeping step with signs that the economy is starting to overheat. About a month ago the IMF came out and said that the UK Economy is the strongest in the G7 which makes it one of the strongest on the planet.
So with his trousers well and truly on fire (to finish off the analogy), BOE Governor Mark Carney cannot ignore it any longer. Last Thursday night Carney surprised markets when he came out and said Interest Rates could increase sooner than they, they meaning Carney, his deputy Charlie Bean and the Bank of England expected, and this could happen as soon before the end of this year.
The reaction by the Pound, especially the Pound Sterling Australian Dollar cross was instant. It regained the rising channel that it had breached the previous day, a channel that it had been trading in for the last 2 months. In fact in 48 hrs it rose from peak to trough 2% and I’m not a betting man, but I would be remiss to think that this is all she wrote; in fact this could just be the start.