Update 2: GBP/AUD Exchange Rate Stumbles as UK Employment Figures Disappoint Forecasts
This morning’s release of UK employment and wage growth figures proved disappointing to Pound investors, triggering a GBP/AUD exchange rate decline of around -0.2%.
The print revealed an unexpected rise in UK unemployment at the end of last year, with the three months to December figure showing an increase from 4.3% to 4.4%. This represents an extra 46,000 people out of work in the UK.
There was some better news in the form of wage growth including bonuses, which held steady at 2.5%, as had been forecast. Excluding bonuses, wage growth performed even better, recording an increase from 2.4% to 2.5%.
Nevertheless, wage growth is still trailing inflation, meaning UK households continue to face a spending squeeze.
GBP/AUD investors have chosen to focus on this and the rising unemployment numbers, figuring the odds of a rate hike from the Bank of England (BoE) have now diminished following the news.
Update 1: Approach of UK Pay Growth Figures Undermines Pound Australian Dollar Exchange Rate Gains
Markets are getting jittery ahead of today’s UK wage growth figures, which has undercut gains made earlier by the GBP/AUD exchange rate.
CMC Market’s David Madden explains;
‘The earnings figures will be the ones to watch as job creation in the UK has greatly outpaced wage increases. Average earnings has been slow to pick up, and should we see it tick up it could trigger another leg higher in the Pound.’
Australian Dollar Weak against Pound Sterling, Allowing GBP/AUD Exchange Rate to Advance
Despite the approach of key wage and government borrowing data keeping Pound Sterling on soft form elsewhere, weakness in the Australian Dollar has allowed the GBP/AUD exchange rate to advance this morning.
The pairing has recorded gains of 0.3%, with the Australian Dollar weighed down by the approach of tonight’s meeting minutes from the Federal Open Market Committee’s (FOMC) 31 January policy gathering.
The UK is shortly to release a slew of data covering January in December, including the claimant count rate, jobless claims change, ILO unemployment rate, employment change and public sector net borrowing figures.
The most impactful of this morning’s data dump will likely be the average weekly earnings figures for the three months on the year to December, as these will give an update on the decline in real wages as surging consumer prices continue to outpace pay.
The last chunk of pay and employment data surprised with an unexpected uptick in the rate of pay growth and an employment change figure over 100,000; a repeat performance that would light a fire under the Pound as odds of a Bank of England (BoE) rate hike would climb sharply.
Australian Dollar Weak despite Positive Wage Data; Approach of FOMC Minutes Allows GBP/AUD Exchange Rate to Advance
The GBP/AUD exchange rate has been able to record uncharacteristic gains given the wider performance of Pound Sterling today.
Appetite for the Australian Dollar has cooled ahead of the release of meeting minutes from the US Federal Reserve’s monetary policy setting group.
Markets are expecting to see confidence from the FOMC, which would further boost the odds of an interest rate hike in March and could also raise the odds that 2018 will see four interest rate hikes instead of three, as initially predicted.
This would weigh on appetite for the high-yield Australian Dollar, as markets have less incentive to take on the higher risk when the more stable US Dollar has plenty of upside potential itself.
Markets have consequently ignored today’s fourth-quarter Australian wage price data, which beat forecasts by 10 basis points both quarter-on-quarter and year-on-year to accelerate unexpectedly to 0.6% and 2.1% respectively.
This is a particularly positive development given that the Reserve Bank of Australia (RBA) has recently stated that weak inflation and relatively high unemployment are preventing them from hiking interest rates.
Accelerating wage growth is likely to boost consumer spending, which in turn will increase inflation, so this is a positive sign for the Australian monetary policy outlook.
Further GBP/AUD Exchange Rate Volatility Forecast after Bank of England Officials Speak
As well as the heap of joblessness, wages and public borrowing data due out this morning, the UK data calendar also promises speeches from Bank of England Governor Mark Carney and officials Ben Broadbent, Andy Haldane and Silvana Tenreyro.
These represent the more cautious side of the Monetary Policy Committee (MPC), so there is a chance they could try to cool building market expectations of an interest rate hike during the March policy meeting.
However, they could provide a clear signal that further tightening is coming, which would send the Pound Sterling to Australian Dollar exchange rate surging; if even more cautious members of the MPC like Haldane support more rate hikes, then it’s virtually a given that the more confident Ian McCafferty and Michael Saunders will too.
Pound Sterling could therefore see strong gains or losses reversed after the BoE officials have spoken, or experience a muted reaction to this morning’s data as markets wait for the full picture from Carney et al. before taking up or altering positions on the Pound.
Meanwhile, the Australian Dollar is likely to remain on soft form for the rest of the day, as markets eagerly await the FOMC meeting minutes.
If the minutes suggest that there will only be three interest rate hikes this year, the Australian Dollar could climb sharply against Pound Sterling.
However, given the confident tone conveyed by the Federal Reserve immediately after the policy meeting, it seems more likely the GBP/AUD exchange rate will be able to make further gains in overnight trading after the accounts are published.