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Tight trading conditions persisted into the morning London session, as forex traders hunkered down for the FOMC statement. That doesn’t mean the session was a complete snooze fest, though, since the Aussie got bid broadly higher, very likely because of the risk-on vibes and recovery in iron ore prices.

The pound, meanwhile, was still range-bound for the day. However, it was the worst performing currency of the session, thanks (or no thanks) to the U.K.’s disappointing jobs report.

  • German final CPI m/m: -0.2% vs. 0.5% expected, -0.2% previous
  • U.K. average earnings index: 2.1% vs. 2.4% expected, 2.3% previous
  • U.K. jobless rate: steady at 4.6% as expected
  • U.K. claimant count change: 7.3K vs. 12.5K expected, 22.0K previous
  • Euro Zone employment change q/q: 0.4% vs. 0.3% expected, 0.4% previous
  • Euro Zone industrial production m/m: 0.5% as expected vs. 0.2% previous
  • Chinese new yuan loans: 1,110B vs. 1,000B expected, 1,100B previous

Major Events/Reports

U.K. jobs report: wages disappoint further

Another month, another jobs report from the Office for National Statistics (ONS). And according to the U.K.’s latest jobs report, the jobless rate held steady at 4.6% in the three months to April.

This is great because the reading is the lowest since 1975. Just as good is that the employment rate also held steady at 74.8%, which is the best reading on record.

Also, the number of people claiming unemployment benefits in May only increased by 7.3K, which is less than the expected 12.5K increase.

The positive stuff ends there, though, since the reading for claimant count change was revised to show that there were 22.0K people who applied for unemployment benefits in April, much higher than the original estimate of 19.4K.

Moving on to wages, nominal average weekly earnings (bonuses included) grew by 1.2% year-on-year in April, with a three-month average of 2.1%.

The three-month average missed the consensus +2.4% while the yearly reading is the slowest increase since August 2014. Ouch!

On a slightly upbeat note, the slower wage growth was due to the 5.8% fall in bonuses. If bonuses are stripped, then average weekly earnings grew by 1.8%, which is a tick faster than the +1.7% printed in March.

On another upbeat note, the slower headline reading for nominal wages was due to smaller increase in bonuses (3.9% vs. 12.4% previous).

However, if inflation is taken into account, then average weekly earnings fell by 0.7% year-on-year. This marks the third consecutive month of annnual falls and shows that higher inflation and poor wage growth is finally taking a toll on the income of Britons.

Brexit-related rumors

According to a BBC report, unnamed “DUP sources” say that the deal that Theresa May’s Conservative Party and the Democratic Unionist Party (DUP) have been working on “has been delayed because of the unfolding tragedy of the Grenfell Tower blaze.”

Recall: the Conservatives failed to capture the 326 seats needed for a majority government, so they’re trying to hammer out a deal with the DUP in order to have a coalition government.

Anyhow, these unnamed sources said that announcing the deal today would be “inappropriate” in the wake of the tragedy.

Additional unnames sources, this time from Downing Street, said that the delay was not “not coming from us,” which implies something else is wrong.

According to political analysis by the BBC:

If a deal was to be delayed it would mean the Queen’s Speech, which had originally been planned for next Monday, could be delayed by at least a week.

It could also delay the start of Brexit talks.

The Conservatives are having to rely on the support of 10 DUP MPs after they fell eight seats short of winning an overall majority at the general election.

It means that Mrs May will remain as prime minister and the DUP MPs will be central to the survival of a Conservative Party administration.

Iron ore recovers (and then some)

After getting hammered and plunging to seven-month lows during the earlier Asian session, iron ore prices recovered and even managed to close out 1.2% higher.

Market analysts say that the rebound in iron ore prices was due to a late recovery in Chinese steel prices after official Chinese data showed a 1.8% year-on-year increase in Chinese steel output in May.

Aussie pairs were obviously very happy about this and got a broad-based boost during the session. In fact, the Aussie is now on course to be the best-performing currency of the day, although that may change depending on how the FOMC statement goes.

Overlay of AUD Pairs & Iron Ore (Black Line): 15-Minute Forex Chart
Overlay of AUD Pairs & Iron Ore (Black Line): 15-Minute Forex Chart

Risk-taking persists in Europe

There was another round of risk-taking in Europe, even though the FOMC statement is just looming over the horizon.

  • The pan-European FTSEurofirst 300 up by 0.59% to 1,536.73
  • Germany’s DAX was up by 1.11% to 12,907.00
  • The blue-chip Euro Stoxx 50 was up by 0.72% to 3,583.50

The risk-on mood also sent U.S. equity futures higher.

  • S&P 500 futures were up by 0.07% to 2,439.75
  • Nasdaq futures were up by 0.17% to 5,769.12

Market analysts attributed the risk-on vibes to positive developments for some tech companies, which spurred demand for tech stocks, as well as positive Euro Zone economic data.

Major Market Mover(s):

AUD

The Aussie had a good run during the session. And that was very likely due to the recovery in iron ore prices, as well as the risk-on vibes. After all, iron is still Australia’s main commodity export. Also, the Aussie is a higher-yielding comdoll.

AUD/USD was up by 24 pips (+0.32%) to 0.7581, AUD/JPY was up by 42 pips (+0.51%) to 83.60, AUD/CHF was up by 46 pips (+0.62%) to 0.7359

GBP

The pound is still actually mostly range-bound for the day. However, it was the worst-performing currency of the session after it got slammed by sellers whent eh U.K.’s jobs report came out.  Some market analysts also pointed to worries over the rumored delay in the deal-making between the Conservative Party and the DUP, however.

GBP/USD was down by 57 pips (-0.45%) to 1.2729, GBP/NZD was down by 111 pips (-0.63%) to 1.7555, GBP/CAD was down by 125 pips (-0.75%) to 1.6791

NZD

The Kiwi was the second best-performing currency of the session. There were no apparent catalyst for the Kiwi, but it’s likely that the risk-on vibes also spurred demand for the higher-yielding Kiwi.  However, it’s also possible that some Kiwi bulls are opening preemptive positions ahead of New Zealand’s GDP report.

NZD/USD was up by 15 pips (+0.20%) to 0.7250, NZD/CHF was up by 35 pips (+0.50%) to 0.7038, NZD/CAD was up by 19 pips (+0.20%) to 0.9581

Watch Out For:

  • 12:30 pm GMT: Headline (0.2% expected, same as previous) and core (0.2% expected, 0.1% previous) readings for U.S. CPI
  • 12:30 pm GMT: Headline (0.1% expected, 0.4% previous) and core (0.2% expected, 0.3% previous) readings for U.S. retail sales
  • 1:30 pm GMT: CB’s leading index for the U.K. (-0.2% previous)
  • 2:30 pm GMT: U.S. crude oil inventories (-2.3M expected, 3.3M previous)
  • 6:00 pm GMT: FOMC rate decision and statement (arget range for Fed Funds Rate expected to be raised from 0.75%-1.00% to 1.00%-1.25%)
  • 6:30 pm GMT: FOMC presser