FX round-up: UK data impresses as Fed disappoints on rate hike expectations

A string of impressive data out on Wednesday helped strengthen sterling's hand against the dollar in the morning, taking the pair higher from 1.2845 to face strong resistance at 1.2900.

Sellers kept cable firmly in check leading into the afternoon, despite positive UK average earnings data for the three months to June that revealed an increase of 2.1%, an improving claimant count figure of -4,2000 and the lowest unemployment rate, 4.4%, for over 10 years.

Disappointing FOMC (Federal Open Market Committee) meeting minutes helped the pair climb towards the end of the session to close 0.1% higher on the day at 1.2885, as Fed officials dampened any rate hike expectations with many members seeing below 2% inflation persisting longer than expected.

"There's no change in market expectations that the Fed will announce the start of balance sheet reduction in September. But markets think there's risk to the scenario of a rate hike in December," said Shunsuke Yamada, FX strategist at Bank of America Merrill Lynch.

Against the euro, sterling faired a little worse, opening at 1.0963 and rallying in the morning to the day's high of 1.1010 before tapering off leading into the FOMC release to finish the session down by 0.12% at 1.0948. The pair currently trades at its lowest levels since October 2016, which has prompted some analysts to forcast a move to parity later this year.

A weaker dollar helped euro close 0.2% higher at 1.1769 by 1900 BST, after Reuters reported that European Central Bank (ECB) chief Mario Draghi would not signal policy changes at a meeting next week in Jackson Hole, Wyoming.

So far this year, the euro has gained 11.5% against the Greenback, making it the best performing currency in the G10 FX arena with the majority of gains coming in recent months as bets grow on ECB unwinding of policy stimulus.

USD/JPY saw very little movement during the UK session, sticking inside a tight 110.67/94 range leading into the FOMC release which saw the pair close 0.47% lower to 110.15.

The dollar's fall after the release of the minutes extended a decline that followed news that several chief executives would leave US President Donald Trump's manufacturing council and strategic policy forum, and his tweet saying he would disband the high-profile advisory councils.