Sterling
A surprise uptick in average earnings helped the Pound strengthen slightly versus most of the majors yesterday.
Pay growth, including bonuses, rose from 2.2% to 2.3% in the three months to February. Although the figure only brings wage growth in line with the (2.3%) rate of inflation, the result was slightly better than analysts had anticipated and this led to a slight increase in demand for Sterling. The labour market report also showed that the unemployment rate held steady at a 41-year low of 4.7%, with 39,000 jobs created and a 45,000 reduction in the jobless rate.
Euro
The Pound to Euro exchange rate rallied slightly yesterday to strike its highest peak since the end of February as traders cheered the better-than-expected UK wage growth numbers.
However, analysts are concerned that the Pound’s 15-20% post-Brexit depreciation, which has made imports more expensive, will continue to push consumer prices higher at a time when wage growth appears to be plateauing. Consumer spending is the bedrock of the British economy and as such there is a real risk of economic slowdown if household purchasing power becomes more acutely impacted by falling real wages (inflation outpacing pay growth).
The Bank of England appears reluctant to hike interest rates while the threat of a consumer slowdown looms large, but it will be difficult for policymakers to remain on the sidelines for too long if price pressures continue to surge above the bank’s 2.0% target.
US Dollar
Sterling grappled with longstanding technical and psychological resistance versus the US Dollar yesterday, rising slightly on the day. It was a mild uptick in UK wages that drove ‘Cable’ higher initially, before comments from US President Donald Trump eroded the appeal of the ‘Greenback’. Trump noted that the US Dollar was getting ‘too strong’ and voiced a favourable attitude towards low interest rate policy. The dovish remarks weighed on the ‘Greenback’ and allowed risk currencies to rebound.
Canadian Dollar
Although Sterling managed to register gains versus most of the majors yesterday, the Canadian Dollar was the exception to this rule. GBP/CAD softened slightly following the Bank of Canada’s latest policy announcement, which saw the central bank leave rates on hold at 0.50% as expected.
Traders overlooked remarks on ‘material slack’ in the labour market and the potential for core inflation to cool, instead choosing to send the ‘Loonie’ higher on news that the BoC was forecasting higher GDP growth of 2.6% in 2016, up from earlier estimates of 2.1%.
Australian Dollar
The Pound to Australian Dollar exchange rate surged over half a cent yesterday to hit a two-month high as traders breathed a sigh of relief that British wage growth was not overtaken by price pressures in February. Data related to the ‘Aussie’ saw consumer confidence slide from 0.1% to -0.7%, while global risk aversion trends, related to the difficult relationships between the US and Russia and North Korea, also dragged on the Antipodean currency.
However, GBP/AUD gave back most of its gains when Trump hinted that US interest rates may not rise as fast as initially expected.
New Zealand Dollar
Sterling appreciated by around a cent against the New Zealand Dollar yesterday to reach its highest level since September 2016. Demand for the Pound was momentarily boosted by the higher-than-anticipated UK pay growth figures, but GBP/NZD softened during the evening as Trump’s dovish remarks boosted risk sentiment.
Data Released
14:00 USD U. of Michigan Confidence (APR P) High 96.6