Sterling
The Pound weakened versus most of the majors yesterday following news that UK real pay growth succumbed to a two-year low in the fourth quarter of 2016.
The headline unemployment rate remained at an 11-year low of 4.8% and the number of people in work jumped 37,000 to 31.84 million – an all-time high! But any optimism deriving from these figures was overshadowed by news that wage growth slowed from 2.8% to 2.6% in Q4. Analysts had pencilled in a hold at 2.8%.
The deceleration of British pay packets means that real pay growth – wage growth minus inflation – dipped to a two-year low of 1.4%. This news was especially worrying for holders of Sterling because inflation was running at an average of 1.2% in the fourth quarter and has since risen to 1.8%. If the trend of slowing wage growth and rising price pressures continues there is every chance that British GDP growth will begin to slow as consumer spending trends also deteriorate.
Euro
The Pound to Euro exchange rate decreased in value by around a quarter of a cent yesterday following news that UK wage growth slowed at the end of 2016, suggesting that Britain’s heavily retail reliant economy could begin to slow through 2017.
The outlook for GBP/EUR appears to favour Sterling over the next few months as sentiment towards the single currency could easily dampen if anti-EU parties continue gaining traction across the currency bloc. With elections in France, Germany, Holland and possibly Italy, this year the future of the Eurozone looks far less certain than it did prior to last June’s Brexit vote. The decision for Britain to leave the EU has galvanised other separatist movements and it will be interesting to see whether investors start to seriously consider hedging against the possibility of a Eurozone collapse.
US Dollar
The Pound slipped to a one-week low versus the US Dollar yesterday following disappointing UK wage figures and a raft of upbeat US ecostats. However, underling support for GBP/USD allowed Sterling to recover most of its losses by the end of the day.
The ‘Greenback’ was bolstered by news that US inflation ramped up from 2.1% to a five-year high of 2.5% in January. The robust reading beat estimates of 2.4% and was interpreted as a bullish signal for the US Dollar because rising inflation increases the likelihood of a near-term rate hike from the Federal Reserve. US traders were also pleased by a retail sales print of 0.4%, which outpaced forecasts of 0.1% and an on-par manufacturing production score of 0.2% for January.
Canadian Dollar
Sterling stumbled against the Canadian Dollar yesterday morning when the latest UK labour market data was released, showing that real wage growth hit a two-year trough in Q4. However, demand for the Pound versus the Canadian Dollar returned during the afternoon as oil prices wobbled on news of another larger-than-anticipated crude inventory build in the US. The Energy Information Administration (EIA) reported that oil inventories jumped 9.5 million barrels to a record high of 518.1 million barrels.
Australian Dollar
Sterling shed over a cent versus the Australian Dollar yesterday as demand for the Pound was negatively impacted by bets that falling wage growth would damage growth prospects in 2017. GBP/AUD was also hampered by news that Australian unemployment fell unexpectedly from 5.8% to 5.7% last month.
New Zealand Dollar
GBP/NZD declined by around a cent-and-a-half yesterday as Sterling saw depreciations versus most of the majors. It will be interesting to see whether the risk-sensitive ‘Kiwi’ will be able to maintain a bullish bias against the Pound going forward, however, due to the hawkish outlook for interest rates in the US.
Data Released
13:30 USD Housing Starts (MoM) (JAN) Medium 0.1%
21:45 NZD Retail Sales Ex Inflation (QoQ) (4Q) Medium 1.0%