Update: UK Average Earnings Increase, Pound Sterling (GBP) Exchange Rates Edge Higher
The Pound (GBP) advanced on the Euro (EUR), US Dollar (USD) and Australian Dollar (AUD) this morning following the release of the UK’s latest employment figures.
Although the unemployment rate remained unchanged (instead of falling as expected) growth in average weekly earnings – both including and excluding bonuses – ticked higher.
However, the results weren’t universally well received.
According to economist Howard Archer; ‘UK earnings growth showing signs of creeping up but a strong upward move remains conspicuous by its absence despite #inflation of 3.1% & unemployment rate down at 4.3%. Regular earnings growth edged up to 2.4% in October from 2.3% in September & August, and 2.1% in July.’
Pound Sterling Exchange Rates Boosted by Near Six-Year High CPI
Demand for Pound Sterling (GBP) exchange rates increased yesterday in reaction to a surprise rise in UK inflation. The consumer price index hit a near six-year high of 3.1% in November, partly due to a 3.6% jump in food prices.
The CPI print means that Bank of England Governor Mark Carney is required to write a letter to Chancellor Philip Hammond explaining why inflation is more than 1% higher than the bank’s 2.0% target rate.
Sterling responded positively to the news initially, due to the belief that rising price pressures could prompt the BoE to accelerate its hiking cycle in 2018.
However, the Pound’s gains softened through the day, with many traders concluding that BoE rates will remain fairly stable until UK wage growth catches up with inflation.
Live GBP Headlines
British Pound boosted by near six-year high UK CPI – Inflation hits 3.1%.
UK labour market report on tap – Rising wage growth could strengthen Sterling.
GBP/EUR exchange rate up slightly – GBP/USD exchange rate softens ahead of Fed policy decision.
GBP/AUD exchange rate softens -100 pips – GBP/NZD exchange rate slides -80 pips.
Pound to Euro (GBP/EUR) Exchange Rate Rallies Ahead of British Labour Report
The Pound to Euro (GBP/EUR) exchange rate rallied slightly yesterday following the higher-than-anticipated UK CPI print. And we could see demand for GBP/EUR remain buoyant through today’s session if the British labour market report also comes in strongly.
The median market consensus suggests that the headline unemployment rate could slide to a new 42-year low of 4.2%, while average earnings could accelerate from 2.2% to 2.5%.
If the actual scores match the forecasts then it could lead to another leg higher for Sterling against the single currency, however, even at 2.5%, wage growth would still be way behind the rate of price growth and this could work against the Pound.
Consumer spending is a key component of domestic growth in the UK but the outlook remains mired by falling real wage growth (inflation outpacing wages).
Pound to US Dollar (GBP/USD) Exchange Rate Fails to Hold CPI Gains
The Pound to US Dollar (GBP/USD) exchange rate posted early gains yesterday, which were swiftly erased during the North American session as traders geared up for this evening’s policy announcement from the Federal Reserve.
A 25 basis point rate hike is the bare minimum that markets will accept from the Fed – and even that could lead to US Dollar losses if it is not accompanied by hawkish commentary.
Sanguine third quarter growth and the recent tax reform progress raise the probability that the US central bank could use its dot plot graph to project four rate hikes in 2018 – one more than the three that were pencilled in at the bank’s previous meeting. Under this scenario the ‘Greenback’ would be expected to climb.
However, it must be noted that Fed Chairwoman Janet Yellen will be passing the baton to Jerome Powell in February, ahead of the Fed’s second rate-setting meeting of the year. This suggests that Yellen may refrain from altering the central bank’s outlook, as she will not be the one to follow through on such a promise.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Flat Despite North Sea Oil Pipeline Closure
Oil prices fluctuated yesterday following news that an important North Sea oil pipeline had been shut down. Having initially spiked to a two-year high on the news of a shortage in supply, crude gave back its gains as investors locked in profit.
The volatility in oil prices did not have a lasting impact on the commodity-sensitive Canadian Dollar and GBP/CAD remained relatively flat on the day.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Continues to Slide from 17-Month High
The Pound to Australian Dollar exchange rate’s pullback from last week’s 17-month high continued yesterday, with GBP/AUD shedding -100 pips.
We could see Sterling mount another rally if today’s UK wage growth figure comes in higher-than-anticipated, or if Thursday’s Bank of England policy statement hints at further monetary tightening in 2018.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Loses -80 Pips
The New Zealand Dollar remained on the front-foot versus the Pound yesterday, as traders bought back into the ‘Kiwi’ on optimism that newly appointed Reserve Bank of New Zealand Governor Adriann Orr will prove a safe pair of hands for the central bank.
Nevertheless, GBP/NZD is still up by over 20 cents since the general elections in late August.
Data Affecting Today’s Pound Sterling Forecast
09:30 GBP ILO Unemployment Rate 3Mths (OCT)
09:30 GBP Average Weekly Earnings (3M/YoY) (OCT)
10:00 EUR Eurozone Industrial Production w.d.a. (YoY) (OCT)
13:30 USD Consumer Price Index (YoY) (NOV)
19:00 USD FOMC Rate Decision (Lower Bound) (DEC 13)
19:00 USD FOMC Rate Decision (Upper Bound) (DEC 13)
19:30 USD Yellen Holds Press Conference Following FOMC Meeting