The GBP had a relatively volatile night compared to most currencies. The GBP initially fell after the UK labour market report showed the UK unemployment rate unexpectedly ticking up and employment grew less than expected. On the positive side, UK wages data surprised on the upside. The GBP then moved higher after hawkish comments from BoE Chief Economist Haldane who said the risks around their most recent projections were to the upside while “the long-awaited – and we have been waiting for a long time – pickup in wages is starting to take root.” BoE Governor Carney, speaking in front of the Treasury Select Committee, wouldn’t be pinned down on when he expected the next BoE rate rise, but the market places around an 80% probability it will be in May.
Meanwhile, the negotiations around a post-Brexit transitional deal continue to rumble away in the background. Leaked UK government documents overnight suggested the UK and EU were broadly aligned on most aspects of the transitional deal, which would include continued access to the single market and customs union over that period. But there remain differences between the two sides that need to be settled if the terms of the transitional deal is to be agreed by the end of March, as the UK government hopes. Theresa May continues to face infighting within her own party, with 62 of her Eurosceptic backbench MPs having recently sent a letter stating their demands for a transitional deal, including “full regulatory autonomy” (something the EU is highly unlikely to agree to). This Eurosceptic block of MPs have the numbers to force a leadership contest.
In Australia, the wage price index was slightly higher than expected, causing the AUD to appreciate and Australian bond yields to rise initially. But these moves subsequently unwound, with the AUD lower on the day and the worst performing major currency overnight. NZDAUD continues to move higher and at 0.9370 is at 6 month highs.
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