Pound rebounds after UK jobs data, but GBP/CAD plummets

After sinking to an 8-month low against the euro in the morning, the pound staged something of a rebound as Wednesday continued.

GBP/EUR fell as low as €1.1187 before recovering to €1.1307, GBP/USD advanced from $1.2814 to $1.2943, GBP/AUD dipped from AU$1.6835 to AU$1.6738 and GBP/NZD extended previous losses to hit a low of NZ$1.7690. Meanwhile, GBP/CAD plummeted from C$1.6664 to C$1.6368 after the Bank of Canada (BOC) rate decision.

What drove the GBP/EUR recovery? Keep scrolling to find out…

What’s been happening?

Falling Bank of England (BoE) interest rate hike expectations sent the pound tumbling on Wednesday, with Deputy Governor Ben Broadbent coming out in favour of interest rates remaining on hold.

However, Sterling was able to edge higher against the euro and US dollar later in the day as the UK published mixed employment data.

There was some good news (the unemployment rate unexpectedly dropped to a new 42-year low of 4.5% in the three months to May) but there was also some not so good news – growth in average earnings remains well below the rate of inflation.

Growth in earnings including bonuses eased from 2.1% to 1.8% while earnings excluding bonuses improved from 1.8% to 2.0%.

The pound moved away from its eight-month low against the euro in the wake of the jobs report and also strengthened against the US dollar after Federal Reserve Chairwoman Janet Yellen expressed concerns about US consumer price pressures.

However, as Yellen’s inflation comments were seen to dent the likelihood of the Federal Reserve increasing interest rates for a third time in 2017, higher risk currencies like the Australian and New Zealand dollars climbed – meaning Sterling extended losses against these peers. AUD and NZD exchange rates were additionally supported by encouraging trade news from China.

The pound also plummeted against the Canadian dollar as the Bank of Canada (BOC) increased interest rates to 0.75% from 0.50%. The tone of the BOC’s accompanying statement indicated that more rate adjustments could be on the way as long as domestic data remains sturdy.

What's coming up?

After all Wednesday’s excitement, Thursday seems a bit dull by comparison.

This morning’s German inflation data met previous estimates of 0.2% on the month and 1.6% on the year and so had little impact on the euro.

The only UK data to be aware of is the BoE’s credit conditions and bank liabilities surveys, while Canada is set to publish its new housing price index.

Another speech from the Fed’s Janet Yellen will be driving USD exchange rates, meanwhile, with any further indications that a third rate hike may not materialise having the potential to send GBP/USD higher.

UK data is also in short supply tomorrow, so Brexit related news and BoE speculation may turn out to be the main cause of further pound movement before the weekend.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.