FX round-up: Pound surges on rate hike expectations, safe havens pay little attention to North Korea
Friday trading saw the pound surge against all its major counterparts as the world woke up to another missile test from North Korea.
Sterling built on Thursday's 1.51% rally, to gain 1.32% against the dollar to 1.3575 - its highest level since the Brexit vote.
This came as the dollar index dropped 0.37% to 91.781 by 1700 BST.
The rise in the pound came during a speech given at the Society of Business Economists' Annual Conference by Monetary Policy Committee (MPC) voting member Gertjan Vilieghe, in which he signed off by saying, "If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months."
Vilieghe also said, "The evolution of the data is increasingly suggesting that we are approaching the moment when the bank rate may need to rise."
This gave traders all the reason they needed to bid cable to highs not seen since June last year, after the Brexit vote.
"Whilst the market was certainly pricing in the possibility of a rate hike in the next six months going into yesterday's meeting, there were very few people who genuinely believed that," said Simon Derrick, currency strategist at Bank of New York Mellon.
In a note to clients, Viraj Patel at ING urged some degree of caution, saying, "A November rate hike shouldn't be viewed as a sure-fire bet; we suspect that it is largely conditional on two factors: signs of a rebound in domestically generated inflation (namely wage growth) and a reduction in short-term political uncertainty."
Trading against the euro, sterling managed to gain significant ground, rising 0.98% to 1.1353, while EUR/USD was 0.3% higher to 1.1955.
The single currency has come under some degree of scrutiny with European Central Bank (ECB) members discussing ways in which to tapper the 80bn euro bond buying programme, details of which some observers have speculated may come in October.
An ECB research paper out on Friday stated, "A normalisation of central bank balance sheets and the ensuing reduction in the level of excess liquidity should naturally bring about a significant retrenchment of Target balances."
Safe haven currencies the Japanes yen and Swiss franc paid little attention to, arguably, the boldest recent threat from North Korean on Friday after the "rougue state" fired another missile over the Hokaido region of Japan and into the Pacific Ocean.
"This rocket has meaning in that North Korea is pushing towards technological completion of its missiles and that North Korea may be feeling some pressure that they need to show the international community something," said Yang Uk, a senior research fellow at the Korea Defence and Security Forum.
USD/JPY saw some offers during the Asian trading session, but soon pared those losses to trade 0.54% higher to 110.83 by 1705 BST, while USD/CHF fell 0.38% to 0.9596.
Chief economist Scott Brown at Raymond James said,"I think the market is kind of getting desensitized to that."
On the data front, the US released figures that showed that month on month retail and core retail sales missed expectatioons and were down -0.2% and 0.2% respectively.
"Noise in the datastream coming out of the American economy continues to confound markets, obscuring positive fundamentals that might otherwise support monetary tightening expectations," said, Karl Schamotta at Cambridge Global Payments in Toronto.
Although this added to general dollar weakness, it did not do the Canadian dollar any favours as the pair traded 0.2% higher to 1.2189, as investors weighed up data showing Canadians' debt as a share of income reached a record high.