Pound Soars in Spite of Rising UK Unemployment

Australian Dollar (AUD) Dented as Risk Appetite Fades

The Australian Dollar (AUD) weakened as the week’s initial bout of market risk appetite started to fade.

With base metal prices failing to sustain their earlier rally, the mood towards the Australian Dollar started to sour somewhat. The latest signs of dovishness from the Federal Reserve also helped to limit the strength of the ‘Aussie’, with global monetary policy looking set to remain looser for longer in 2021.

Another solid increase in wage prices for the fourth quarter could help to shore up AUD exchange rates this morning.

Pound (GBP) Positive even as UK Unemployment Rises

The Pound (GBP) continued making solid gains overnight even as the UK unemployment rate picked up as anticipated in December, increasing from 5% to 5.1%.

The accompanying better-than-expected wage growth data offset concerns over the unemployment rate, while investors were optimistic over the prospect of non-essential retail shops re-opening in April.

However, despite the UK government being committed to taking a more cautious approach to exiting its current national lockdown, support for the Pound could remain in the days ahead on optimism of a swift economic recovery.

Euro (EUR) Support Limited in Spite of Positive Eurozone Inflation Rate

The Euro (EUR) found little support on the back of confirmation that the Eurozone inflation rate returned to positive territory in January.

As markets had already largely priced the positive figure into the single currency, this left EUR exchange rates with limited room for gains.

As long as the finalised fourth quarter German GDP remains in positive territory, though, this could see the single currency return to a stronger footing.

US Dollar (USD) Softens on Latest Signs of Fed Dovishness

The US Dollar (USD) remained under a degree of pressure in the wake of the latest commentary from Federal Reserve Chair Jerome Powell.

As Powell acknowledged that it could take ‘some time’ to make progress towards the central bank’s inflation target and in lowering unemployment, USD exchange rates were biased to the downside. Although the tone of Powell’s comments was largely unsurprising, their dovish nature helped to weigh down the US Dollar last night.

However, another strong monthly improvement in new home sales may put a floor under USD exchange rates tonight as confidence in the housing market improves.

Canadian Dollar (CAD) Supported by Resilient Oil Market

The Canadian Dollar (CAD) saw limited gains as Brent crude continued to trend above US$65 per barrel during Tuesday’s European session.

With oil prices still elevated compared to their 2020 levels, especially in the face of the recent Texas oil fields freeze, the commodity-correlated currency found fresh support against its rivals. Even so, as the general sense of market risk appetite proved rather muted overnight, this limited the potential for any CAD exchange rate gains.

Another weekly drawdown in US crude oil stockpiles could encourage the Canadian Dollar to push higher across the board.

New Zealand Dollar (NZD) Shakes Off Impact of Retail Sales Contraction

The New Zealand Dollar (NZD) held onto a positive footing even as the fourth quarter New Zealand retail sales data disappointed forecasts.

While sales unexpectedly contracted -2.7% on the quarter, this failed to put any major downside pressure on the ‘Kiwi’, coming in the wake of the third quarter’s sharp increase.

However, anticipation ahead of the Reserve Bank of New Zealand’s (RBNZ) rate decision may see NZD exchange rates falter.

Data Releases

11:30 AUD Wage Price Index (Q4) 1.1%
12:00 NZD Reserve Bank of New Zealand Rate Decision 0.25%
18:00 EUR Germany Gross Domestic Product (Q4 F) 0.1%
02:00 USD New Home Sales (Jan) 2.1%

Louisa Heath

louisa.heath@torfx.com


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