Sterling nears one-month high on UK jobs data, yen in focus
STERLING rose on Tuesday (Jan 17), nearing a one-month high against the US dollar, after the pace of pay growth in Britain accelerated again.
Meanwhile, the yen was perching close to seven-month highs as investors held their breath for a potential policy shift from the Bank of Japan (BOJ).
The pound rose 0.5 per cent to US$1.2261, close to a one-month high which it touched on Monday, after the release of data showing that wage growth in the UK sped up in the three months to November. Employment also rose by a faster-than-expected 27,000.
The Bank of England (BOE) continued to monitor the data as it gauged how much higher to raise interest rates.
Simon Harvey, head of foreign-exchange analysis at Monex Europe, said: “The official data showing employment conditions have held up better than expected should be taken with a pinch of salt. The BOE is unlikely to count its chickens before they’ve hatched.”
BOE governor Andrew Bailey said on Monday that a shortage of workers in the labour market posed a major risk to forecasts that inflation will fall from its current levels, which are above 10 per cent.
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Foreign-exchange strategists at ING and Monex Europe said it was too early to dismiss the risk of another 50-basis-point interest-rate increase in February, as the BOE was set to hike rates for the 10th consecutive time.
The Japanese yen steadied around 128.65, down 0.1 per cent against the US dollar, after hitting a late-May high of 127.22 per US dollar on Monday.
Options trade signalled a market braced for sharp moves ahead of Wednesday, when the BOJ concludes its two-day meeting. Overnight implied volatility surged to a six-year high.
Speculation about a change or end to Japan’s yield-curve control policy continued to build, given that investors have pushed 10-year bond yields above the 0.5 per cent ceiling set by the BOJ. The amount of bond-buying to defend the ceiling has also become staggering.
“We should not assume that a lifting of yield-curve control will be the end of Japan’s monetary-policy adjustment,” said George Saravelos, foreign-exchange strategist at Deutsche Bank.
“The next step will be to start preparing for the end of negative rates... the BOJ will have to start thinking about quantitative tightening as well to provide supply to the market.”
All these steps should have “an even more positive impact on the (yen) than the current adjustment to back-end yields”, he added.
Elsewhere, the US dollar index held near a seven-month low of 102.77, which it hit on Monday, to stand 0.1 per cent lower at 102.15. The euro steadied at US$1.0842.
There was not a great deal of currency-market reaction to stronger-than-expected Chinese growth data. The yuan last traded 0.6 per cent weaker at 6.7768 per US dollar. REUTERS
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