Currencies: Dollar inches up as pound falls from its highest since Brexit vote

The dollar rebounded on Tuesday, partly boosted by a drop in the pound after a disappointing reading on U.K. wage growth put the brakes on the recent sterling rally.

A flurry of Federal Reserve speakers and U.S. data later in the session could also drive the dollar action on Tuesday.

What are currencies doing?

The ICE U.S. Dollar Index DXY, -0.01%  inched 0.1% higher to 89.484, rebounding slightly from a 0.4% loss on Monday.

The pound GBPUSD, -0.0558%  bought $1.4311, down from $1.4338 late Monday in New York. Earlier in the session, sterling had jumped to its highest level since the U.K.’s Brexit vote in June 2016, fetching as much as $1.4377. The U.K. currency is still up 2.6% over the past month as traders prepare for a possible Bank of England rate rise in May.

The euro EURUSD, -0.1454%  fell to $1.2366 compared with $1.2381 on Monday, falling as German economic sentiment dropped further in April.

The yen USDJPY, -0.01% stood out as the only major currency appreciating against the dollar on Tuesday. The buck traded at ¥107.06 compared with ¥107.12 on Monday.

What is driving the market?

As “Turnaround Tuesday” unfolded, the dollar managed to erase its loss and swing into positive. Part of the dollar index’s rebound was due to a decline in the pound that came after U.K. labor market data showed wages including bonuses grew 2.8% in February. While the rise means wages now are growing slightly more than inflation, the reading missed forecasts of a 3% rise that could have cemented expectations of a Bank of England rate rise in May.

What are strategists saying?

“Our bottom line from today’s [U.K.] labor market report is that employment remains robust but wage growth is subdued despite the pick-up in the annual growth rate. It won’t stop the MPC from increasing the bank rate by 25bp on 10 May but, in our view, after May the MPC will remain on hold for the rest of the year as CPI inflation moderates,” said Daniel Vernazza, chief U.K. economist at UniCredit in a note.

What is on the economic docket?

A range of U.S. data could also drive the dollar action later in Tuesday’s session. Numbers on housing starts and building permits for March are due at 8:30 a.m. Eastern Time, followed by industrial production and capacity utilization at 9:15 a.m.

Several Fed officials are also lined up to speak in public on Tuesday. San Francisco Fed President John Williams, who has said he backs three or four gradual interest rate rises this year, is scheduled to give a speech in Madrid at 9:15 a.m. Eastern Time.

In another calendar highlight, Fed Vice Chair for Financial Supervision Randal Quarles will testify to the House Finance Committee on regulatory reform at 10 a.m.

Three non-voting Fed members are also on the docket: Philadelphia Fed President Patrick Harker is set to give a talk on the economics of higher education at St Joseph’s University in Philadelphia at 11 a.m., while Dallas Fed President Rob Kaplan is scheduled to appear at an International Economic Forum of the Americas event in Coral Gables, Fla. at noon. Chicago Fed President Charles Evans is due to speak on the economy and monetary policy to the Chicago Rotary Club at 1:10 p.m.

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