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    Underwhelming wage data disappoints pound bulls

    GBP

    The pound was weighed down by disappointing employment data on Wednesday. The data – which it had been speculated could provide the catalyst for an early BOE rate hike – showed lower-than-expected growth in Average Weekly Earnings and a marginal slow-down in the pace of hiring.

    Average Weekly Earnings rose by 2.4% in the 3-months up to June compared to a year ago, a decline from the 3.2% previously, and not as high as the 2.8% forecast by market watchers. Average Earnings are important to the BOE’s monetary policy outlook, who consider them a barometer of inflation expectations and whether the economy is likely to overheat.

    Other data showed the Unemployment Rate at 5.6% as expected, Employment Change fell by a faster than-expected -63k, Jobless Claims fell -4.9k, Claimant Count Rate remained at 2.3% and Weekly Earnings Ex Bonus remained at 2.8% in line with analyst’s estimates.

    Later in the evening the Royal Institute of Chartered Surveyors released the House Price Balance, which rose to 44% from 40% previously, beating expectations of 42%.

    USD

    The dollar weakened on Wednesday after Beijing’s decision to devalue the yuan yet further, dampened Fed rate hike expectations.

    According to market-based measures of when the Fed might raise interest rates, the probability of a lift-off in September has fallen from 54% to 30% in one day.

    It is thought that the weaker yuan will reduce the cost of already cheap Chinese imports, acting as a drag on U.S inflation expectations, which in turn could lead the Fed to delay introducing tightening measures.

    A slew of more bad data from China on Wednesday also pushed down commodity prices which is expected could further dampen the inflation outlook globally and stay the Fed’s hand.

    On the data front, the main release was the Budget Deficit, which fell to -149.2bn from 94.6bn previously, when a lesser fall to 140.0bn had been expected.

    EUR

    The yen strengthened over 100 points versus the dollar on Wednesday due mainly to a weakening dollar as fears that the Chinese devaluation would export deflation. Markets do not have a handle on what exactly the knock on effects of the yuan depreciation might be and as a consequence many dollar traders have squared up their positions as a precaution.

    From a technical viewpoint, dollar longs remained overcrowded which exaggerated corrections in a thin summer market. There was also evidence of safe-haven trading in the yen.

    In economic news on Wednesday Japan’s domestic corporate goods price index in July decreased 0.2% mom, higher than forecasts for a fall of 0.1%. Meanwhile Japan’s final industrial production result rose 2.3% yoy in June versus preliminary figures recording an advance of 2.0%. The Tertiary Industry Index in Japan climbed 0.3% mom in June, on a monthly basis, compared to a revised fall of 0.6% in the prior month.

    Preliminary figures reported that Machine Tool Orders only rose 1.6% yoy in July after recording a 6.6% advance in the previous month.

    Earlier on Wednesday, the minutes from the BOJ’s policy meeting of July 14/15 were released indicating that the nation’s economic recovery remains on track. However the minutes showed worries that the slowdown in China could hurt Japanese exports.
    The euro rose on Wednesday on a combination of relatively positive economic outlook for the region, investors buying back the euro due to it being used as a funding currency on bullish yuan bets and after the final sealing of the Greek bailout deal dissolved lingering market concerns associated to the risk of a Grexit.

    The single currency successfully shrugged off poor Euro-zone Industrial Production figures, which showed a rise of 1.2% yoy in June from 1.6% previously and 1.7% forecast.

    On a monthly basis Industrial Production fell -0.4% from -0.2% in May, and well below expectations of -0.1%.

    JPY

    GBP

    The pound was weighed down by disappointing employment data on Wednesday. The data – which it had been speculated could provide the catalyst for an early BOE rate hike – showed lower-than-expected growth in Average Weekly Earnings and a marginal slow-down in the pace of hiring.

    Average Weekly Earnings rose by 2.4% in the 3-months up to June compared to a year ago, a decline from the 3.2% previously, and not as high as the 2.8% forecast by market watchers. Average Earnings are important to the BOE’s monetary policy outlook, who consider them a barometer of inflation expectations and whether the economy is likely to overheat.

    Other data showed the Unemployment Rate at 5.6% as expected, Employment Change fell by a faster than-expected -63k, Jobless Claims fell -4.9k, Claimant Count Rate remained at 2.3% and Weekly Earnings Ex Bonus remained at 2.8% in line with analyst’s estimates.

    Later in the evening the Royal Institute of Chartered Surveyors released the House Price Balance, which rose to 44% from 40% previously, beating expectations of 42%.

    USD

    The dollar weakened on Wednesday after Beijing’s decision to devalue the yuan yet further, dampened Fed rate hike expectations.

    According to market-based measures of when the Fed might raise interest rates, the probability of a lift-off in September has fallen from 54% to 30% in one day.

    It is thought that the weaker yuan will reduce the cost of already cheap Chinese imports, acting as a drag on U.S inflation expectations, which in turn could lead the Fed to delay introducing tightening measures.

    A slew of more bad data from China on Wednesday also pushed down commodity prices which is expected could further dampen the inflation outlook globally and stay the Fed’s hand.

    On the data front, the main release was the Budget Deficit, which fell to -149.2bn from 94.6bn previously, when a lesser fall to 140.0bn had been expected.

    EUR

    The yen strengthened over 100 points versus the dollar on Wednesday due mainly to a weakening dollar as fears that the Chinese devaluation would export deflation. Markets do not have a handle on what exactly the knock on effects of the yuan depreciation might be and as a consequence many dollar traders have squared up their positions as a precaution.

    From a technical viewpoint, dollar longs remained overcrowded which exaggerated corrections in a thin summer market. There was also evidence of safe-haven trading in the yen.

    In economic news on Wednesday Japan’s domestic corporate goods price index in July decreased 0.2% mom, higher than forecasts for a fall of 0.1%. Meanwhile Japan’s final industrial production result rose 2.3% yoy in June versus preliminary figures recording an advance of 2.0%. The Tertiary Industry Index in Japan climbed 0.3% mom in June, on a monthly basis, compared to a revised fall of 0.6% in the prior month.

    Preliminary figures reported that Machine Tool Orders only rose 1.6% yoy in July after recording a 6.6% advance in the previous month.

    Earlier on Wednesday, the minutes from the BOJ’s policy meeting of July 14/15 were released indicating that the nation’s economic recovery remains on track. However the minutes showed worries that the slowdown in China could hurt Japanese exports.
    The euro rose on Wednesday on a combination of relatively positive economic outlook for the region, investors buying back the euro due to it being used as a funding currency on bullish yuan bets and after the final sealing of the Greek bailout deal dissolved lingering market concerns associated to the risk of a Grexit.

    The single currency successfully shrugged off poor Euro-zone Industrial Production figures, which showed a rise of 1.2% yoy in June from 1.6% previously and 1.7% forecast.

    On a monthly basis Industrial Production fell -0.4% from -0.2% in May, and well below expectations of -0.1%.

    JPY


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