Pound weakened as UK wage growth remains sluggish

The latest UK employment data didn’t impress when it was published yesterday, with Sterling falling against its major peers in response.

The pound remains largely flat this morning ahead of the imminent Bank of England (BoE) interest rate decision announcements. GBP/EUR is trending at €1.1113, while GBP/USD is stuck at US$1.3208. GBP/AUD has slid to A$1.6515, but GBP/NZD has risen to NZ$1.8256. GBP/CAD is also on the rise, although to a lesser degree, having hit C$1.6092.

The announcements today from the latest Bank of England policy meeting could cause significant drama for the pound. Read on to find out what the markets want to hear…

What’s been happening?

UK jobs data failed to impress yesterday morning, despite the fact that employment surged in the three months to July and the unemployment rate fell to a fresh low of 4.3%.

However, wage growth in the three months to July remained stuck at 2.1%, both including and excluding bonuses. Forecasts have been for overall pay growth to hit 2.3% and for earnings without bonuses to hit 2.2%.

The fact that employment is surging while wages remain weak has suggested to some analysts that UK businesses have yet to solve the nation’s ‘productivity puzzle’, and are having to hire more workers to get more work done rather than improving the efficiency of those they already employ.

GBP/EUR fell despite the fact there was little reason for investors to want the euro yesterday. Most of the data due from the Eurozone was of low impact, although date for July showed that industrial production in the currency bloc did marginally undershoot forecasts.

There was nothing on the data calendar to particularly support the US dollar, but market expectations that Hurricane Irma would be less damaging to the US economy than initially predicted continues to buoy USD. President Trump’s administration also hinted at further action on tax reform, raising hopes that his business friendly plans could be one step closer to becoming reality.

What's coming up?

The biggest event on the UK calendar today will be the Bank of England’s latest monetary policy announcements. The surging inflation data released earlier this week has piled the pressure on policymakers to hike interest rates in order to help alleviate some of the pressure on household budgets.

While economists expect no change to interest rates, markets will be interested to see how many policymakers vote to raise borrowing costs. Currently only Ian McCafferty and Michael Saunders tend to back interest rate hikes, so it one or more members of the Monetary Policy Committee (MPC) joined them Sterling could rocket higher.

Additional volatility for GBP/USD could come from this afternoon’s US consumer price index. Forecasts expect that core inflation is likely to soften slightly, which won’t bode well for the chances of the Federal Reserve hiking interest rates in December.

Meanwhile the only event on the Eurozone economic calendar today is a speech this afternoon from member of the ECB’s Executive Board Yves Mersch.

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.