Pound US Dollar (GBP/USD) Exchange Rate Consolidatory on Elevated Wage Growth
(Article updated 09:00, 12/7/23)
The Pound US Dollar (GBP/USD) exchange rate is consolidating yesterday’s gains this morning. Investors are continuing to digest May’s red hot wage growth data, and exploring how it could impact inflation.
The perception is that elevated wages leads to increased spending power among consumers, keeping inflation up.
Because of this, GBP investors are betting on a bumper rate hike from the Bank of England (BoE) in August, despite increasing unemployment.
At the time of writing, GBP/USD is trading at around US$1.2942, stick close to the morning’s opening rates.
Previous update below:
Pound US Dollar (GBP/USD) Exchange Rate Trims Gains amid UK Economic Worries
(Article updated 16:05, 11/7/23)
The Pound US Dollar (GBP/USD) exchange rate is retreating below the US$1.29 mark this afternoon, as bets on further tightening from the Bank of England (BoE) mollify Sterling.
While additional hikes are now expected on the back of the morning’s record wage growth data, fears of overtightening have resurfaced.
The BoE are now expected by analysts to hit a terminal rate of 6.25%, which would likely be very harmful to the UK economy.
As the UK labour market appears to be cooling, per the rise to 4% in the unemployment rate, these bets are something of a mixed blessing.
At the time of writing, GBP/USD is trading at around US$1.2897, up around 0.25% from the morning’s opening rates.
Original article continues below:
Pound US Dollar Exchange Rate Soars on Red Hot Wage Growth Data
The Pound US Dollar exchange rate is strengthening today, following hotter-than-expected wage growth data.
At the time of writing, GBP/USD is trading at around US$1.2933, rising by just over 0.5% from the morning’s opening rates.
Pound (GBP) Rallies amid Hotter-Than-Forecast Wage Growth Data
The Pound (GBP) is climbing today, following forecast-smashing wage growth data released earlier this morning.
Average earnings excluding bonuses held at 7.3%, above expectations of a cool to 7.1%. Similarly, with bonuses was hotter-than-expected, printing at 6.9% up from 6.7%.
As a key inflationary pressure, this data is prompting elevated interest rate hike bets as investors anticipate further hikes from the Bank of England (BoE).
James Smith, Developed Markets Economist at ING, commented:
‘Private sector regular pay is now growing at more than 9% on a three-month annualised basis, the highest it has been since the depths of the Covid-19 pandemic. Some of this can be explained by backward revisions, but it nevertheless bolsters the chances of a repeat 50 basis point rate hike in August.’
However, these gains could be being tempered somewhat by a sharp jump in unemployment. The unemployment rate for May leapt to 4%, potentially indicating growing slack in the labour market.
US Dollar (USD) Lacks Direction despite Hawkish Fed Guidance
The US Dollar (USD) is lacking direction today, as analysts continue to consider the Federal Reserve’s forward guidance.
A lack of macroeconomic data is pushing this to the forebear, as investors appear unconvinced over the Fed’s hawkish outlook.
The Federal Reserve Bank of New York found that inflation expectations were continuing to decline amongst the public. These expectations likely weighed on USD yesterday, with the ‘Greenback’ unable to stage a recovery so far today.
Elsewhere, shifts in perceptions towards the US tech sector could be weighed on USD rates. Financial Times found that hedge funds were beginning to move towards underinvested European currencies, pointedly away from US tech.
Samantha Rosenstock, Head of Investment Research at Man FRM, commented:
‘The long-short managers don’t see much dispersion between companies. Conversely in Europe, the valuations are lower so they are more attractive.’
GBP/USD Exchange Rate Forecast: US Inflation in Focus
Looking ahead for the US Dollar, the core catalyst of movement is set to be tomorrow’s consumer price index release.
Over June, headline and core inflation are forecast by economists to cool significantly. If this prints accurately, the release may weigh on the ‘Greenback’ and pare back rate hike bets.
This is swiftly followed by the latest UK GDP data on Thursday, which could dent Sterling. Economists are currently forecasting a significant contraction of 0.3% on a monthly basis, which may spark recession anxieties.
Elsewhere, risk appetite is likely to play a role in driving the pairing. If the market mood sours, GBP/USD would weaken due to the ‘Greenback’s safe-haven nature.