UK Wage Growth Remains Below Inflation, Pound Sterling Exchange Rates Volatile
After tumbling on Tuesday in reaction to the UK’s below-forecast inflation data, the Pound recouped some of its losses against the US Dollar and Australian Dollar on Wednesday.
The GBP/EUR exchange rate remained on the back-foot however, and Sterling later fluctuated against the majors after UK average earnings figures for August were positively revised and September’s average weekly earnings including bonus’ figure proved stronger-than-expected.
Gains were minimal however as the rate of wage growth remains significantly below inflation and the UK lost positions in the three months through September rather than gaining the 50K forecast.
Pound Sterling: GBP/EUR Exchange Rate Down 0.6% after CPI Data
As the UK’s below-forecast inflation figures supported the argument in favour of interest rates remaining on hold for the foreseeable future, the report left Pound Sterling (GBP) exchange rates broadly weaker.
The GBP/EUR exchange rate slid by 0.6% while GBP/AUD and GBP/NZD both lost over 0.3%. GBP/USD losses were less notable, but ‘Cable’ still fell from the day’s opening levels.
In the view of Samuel Tombs of Pantheon; ‘Retailers have nearly finished passing on higher import prices to consumers, and domestically-generated inflation still looks weak. As a result, we still expect CPI inflation to fall steadily to 2 per cent by the end of 2018, undershooting the [Bank of England’s] expectations and enabling it to wait another 12 months before raising the Bank Rate again.’
Live Currency Headlines
UK CPI report on tap – Five-year high print may not be enough to lift the Pound.
Sterling ‘weak and wobbly’ as Theresa May’s future remains in doubt – Political uncertainty to impact Brexit talks.
Pound to Euro (GBP/EUR) exchange rate softens – Central bankers to meet in Frankfurt
Political Concerns Could Ensure Pound Sterling (GBP) Exchange Rates Remain Weak and Wobbly
The Pound started this week’s session terribly, registering losses versus all of its most-traded currency peers.
The prospect of UK Prime Minister Theresa May’s government falling was seen to increase over the weekend, when a number of Tory MPs questioned her suitability for the role.
Cabinet ministers appeared to undermine May’s authority by writing a set of Brexit demands, while forty Conservative MPs are reportedly ready to sign a vote of no-confidence.
The PM’s position appears weaker than at any point since the botched general election, which is weighing heavily on demand for the Pound because a change in leadership would likely interrupt the Brexit process and reduce the chances of Britain securing a transitional deal anytime soon.
Although UK inflation is tipped to come in at 3.1% this morning, its highest level for five years, the Pound may struggle to rally due to persistent political concerns.
Pound to Euro (GBP/EUR) Exchange Rate May Struggle Despite UK CPI
Data this morning is tipped to show that the currency bloc saw economic growth of 0.6% maintained in the third quarter.
While faster than Britain’s 0.4% Q3 GDP score, it’s unlikely that the Euro will rally strongly in response to the report unless Eurozone growth beats the 0.6% forecast.
In the UK, the October CPI report is expected to show that price pressures accelerated to a new five-year high, which could provide food for thought for policymakers at the Bank of England.
However, with British sentiment severely impacted by speculation around UK PM Theresa May’s future, gains in GBP/EUR could be limited.
Yesterday evening Brexit secretary David Davis announced that UK MPs would have the chance to vote on Britain’s eventual Brexit deal.
However, Sterling barely moved on the news, because Davis also said that if parliament voted against the Brexit deal, Britain would simply leave the EU without a new trading arrangement.
Pound to US Dollar (GBP/USD) Exchange Rate Softens Ahead of Central Bankers Meeting
The Pound to US Dollar exchange rate tumbled by around -80 pips yesterday as investors sold Sterling on fears that Brexit talks could breakdown due to political instability in Britain.
A meeting of central bankers in Frankfurt this morning, featuring big-hitters such as Federal Reserve President Janet Yellen, Bank of England Governor Mark Carney and European Central Bank President Mario Draghi, could provide currency traders with new stimulus.
While the Fed’s Yellen is likely to leave the door open to an expected December rate hike, it will be interesting to see whether the BoE’s Carney opts to employ any hawkish rhetoric in order to combat Sterling’s recent softness – as this is a technique he has used in the past.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Rebounds as Global Risk Appetite Softens
The Pound initially tumbled versus the Canadian Dollar at the start of this week’s session, however, a shift lower in global risk appetite allowed Sterling to bounce back during the afternoon.
It seems that global markets were disappointed with the apparent delay to US President Donald Trump’s proposed tax cuts.
If the GDP-boosting tax reform does not make it through to legislation, then softer US growth would likely lead to reduced demand for riskier assets.
Fears that estimates for global growth may need to be revised lower weighed on demand for the risk-sensitive ‘Loonie’.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Flat Ahead of UK CPI
Sterling struggled against the Australian Dollar yesterday morning as political anxieties plagued Sterling traders.
However, the ‘Aussie’ slipped during the afternoon as negative risk sentiment led to a sell-off in high-beta currencies such as the Australian Dollar.
While UK political concerns are liable to weigh on demand for Sterling, we could see GBP/AUD push ahead during today’s session if British inflation prints at 3.1% as expected.
Pound to New Zealand Dollar Exchange Rate Could Rally on 5-Year High UK Inflation
The Pound to New Zealand Dollar (GBP/NZD) exchange rate recovered from an initial decline yesterday, leaving the door open to a strengthening of Sterling during today’s session.
Markets predict a five-year high UK inflation score this morning, which could foster hopes of tighter-than-expected policy from the Bank of England.
And, if global risk sentiment remains weak, this could allow Sterling to rally versus the risk-correlated ‘Kiwi’.
Data Affecting Today’s GBP Exchange Rate Forecast
09:30 GBP Consumer Price Index (YoY) (OCT)
10:00 USD Yellen Speaks on ECB Panel with Draghi, Kuroda, and Carney
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (3Q P)