POUND GAINS ON SOLID JOBS DATA; EURO CONSOLIDATES
Europe’s main currencies diverged slightly on Wednesday, as the British pound rose while the euro consolidated gains ahead of highly-anticipated testimony from US Federal Reserve Chairwoman Janet Yellen.
Pound sterling advanced 0.3% after the Office for National Statistics posted better than expected jobs data. The United Kingdom’s claimant count increased by 6,000 last month, below expectations calling for a gain of 10,000.
The ILO unemployment rate fell unexpectedly to 4.5% in the three months to May, confounding expectations for 4.6%.
However, the news wasn’t entirely positive. Average hourly earnings including bonus rose just 1.8% annually in the three months through May. That’s below the rate of inflation.
The Eurozone’s factory sector gathered pace in May, based on the latest industrial production figures. Industrial output in the 19-member currency zone climbed 1.3%, following a 0.3% increase the prior month, Eurostat reported Wednesday. That translated into an annualized gain.
Analysts had forecast a monthly increase of 1.1% and an annual gain of 3.6%.
Attention now shifts to Fed Chair Janet Yellen, who will be testifying before the House Financial Services Committee on Wednesday. Washington’s top central banker may address her plans to continue tightening monetary policy, including unwinding the Fed’s massive balance sheet.
Yellen will testify before the Senate Banking Committee on Thursday.
The US economic calendar heats up in the latter half of the week, with reports on jobless claims, consumer inflation, retail sales and consumer confidence.
The US dollar index (DXY) pared losses ahead of the New York open, trading flat against a basket of world currencies.
In commodities, oil prices extended their gains in belated response to an industry report that showed a huge draw in commercial crude inventories. The American Petroleum Institute (API) reported Tuesday afternoon that crude inventories fell by 8.13 million barrels in the latest week. The US Energy Information Administration (EIA) will release official stockpile data later in the day.
The EUR/USD edged down 0.1% on Wednesday but continued to trade near 14-month highs. Heightened political risks in the United States may expose the dollar to further weakness in the days ahead. The EUR/USD faces psychological resistance at the 1.15 level.
The cable broke higher in mid-week trade but continued to trade in a narrow range ahead of Fed testimony. The GBP/USD exchange rate faces immediate support at the Tuesday low of 1.2832. On The opposite side of the ledger, it faces immediate resistance at 1.2895.
Oil prices climbed another 1.4% ahead of New York trading, with West Texas Intermediate approaching fresh one-week highs. Prices are on track for their third consecutive advance but remain highly volatile to oversupply concerns. Traders should, therefore, keep a close eye on the news wire.