Pound seesaws after strong wage growth data

Above-forecast wage growth may have boosted the pound until mid-afternoon yesterday, but markets seemed to have a rethink later in the day and Sterling lost its gains - and more.

After slumping yesterday, Sterling is largely continuing to weaken this morning. GBP/EUR is trending fractionally below opening levels at €1.0946. GBP/USD is also flat at US$1.2891 - the US dollar was the only currency yesterday against which the pound was able to cling to gains. GBP/AUD has slipped to AU$1.6227, GBP/NZD to NZ$1.7605, and GBP/CAD to C$1.6255.

Will today’s UK retail sales figures boost the UK’s economic forecast? Find out what else could cause turbulence for GBP exchange rates below...

What’s been happening?

The pound initially saw strong gains yesterday, but was largely unable to hold them by the close of the day.

UK wage growth figures covering the three month period to June showed a faster-than-expected rate of pay growth than economists had forecast.

Wages including bonuses were expected to hold steady at 1.8%, but the previous figure was revised higher to 1.9% and the latest pay growth was reported at 2.1%. Earnings excluding bonuses were also expected to hold steady, at 2%, but rose to 2.1%.

This initially boosted the pound, as it suggested softening pressure on UK households from inflation, although gains were shed later in the day as the realisation that real wage growth - pay accounting for inflation – came in at -0.5% began to bite.

GBP/EUR was able to notch up some gains as the common currency slumped, even though GDP figures from Italy and the Eurozone had shown solid growth in the currency bloc.

Quarter-on-quarter Eurozone GDP held at 0.6%, while year-on-year growth beat forecasts of 2.1% to come in at 2.2% in the latest preliminary estimate.

Despite markets being on hold ahead of the latest US data, GBP/USD remained stuck below opening levels.

Even disappointing data failed to undermine USD enough to propel GBP higher; housing starts unexpectedly declined -4.8% in July, while new building permits fell -4.1% - more than double what was forecast.

What's coming up?

UK retail sales figures are set for release this morning - accelerating growth will show that consumer spending continues to defy surging inflation, while a slowdown or decline would indicate that soaring prices are forcing households to reign in their expenditure.

The account of the most recent European Central Bank (ECB) monetary policy meeting will be released around midday. Indications that the Governing Council will indeed discuss changes to quantitative easing this autumn would boost the euro.

The markets are likely to spend the rest of the day reacting to those FOMC minutes released after the close of trade yesterday. Although the minutes were largely upbeat, markets interpreted the Fed’s split on whether inflation was systematically weak or just temporarily sluggish as a sign rates aren’t likely to rise in December. This could boost GBP/USD today.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.