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Pound firms as uptick in wage growth buoys BoE rate hike expectations

currency-newsPound firms as uptick in wage growth buoys BoE rate hike expectations
The pound traded with modest gains on Tuesday, following the publication of the UK’s latest employment figures.

Sterling remains on a positive trajectory this morning, with GBP/EUR buoyed at €1.1904 and GBP/USD stable at $1.2095. GBP/CAD has ticked up to C$1.5567, while GBP/AUD and GBP/NZD have accelerated to AU$1.7323 and NZ$1.9134, respectively.

Looking ahead, will some cautious FOMC minutes weigh on the US dollar today?


What’s been happening?

The pound ticked higher during yesterday’s session, following some mixed UK employment data.

June’s figures reported that unemployment held at 3.8% while average earnings rose from an upwardly revised 4.4% to 4.7%, versus forecasts for a more modest rise to 4.5%.

While this still leaves wage growth lagging well behind inflation, Sterling appeared to firm on hopes the better-than-expected figures will encourage the Bank of England (BoE) to pursue another 50bps rate hike at its next meeting.

The US dollar initially strengthened on Tuesday. The safe-haven currency being buoyed by a cautious market mood in addition to hawkish Federal Reserve rate hike expectations.

However USD exchange rates began to relinquish these gains later in the session amid some underwhelming US data.

This pullback in the US dollar helped to prop up demand for the euro. Although these gains were capped as the latest German ZEW index reported economic sentiment continued to deteriorate this month.


What’s coming up?

In the spotlight today will be the release of the minutes from the Federal Reserve’s July policy meeting.

USD investors will looking to the minutes to shed more light on policymaker’s outlook on monetary policy. If there is a broadly hawkish consensus, then the US dollar is likely to rally.

Also influencing USD exchange rates will be the publication of the latest US retail sales release.

In the meantime, the pound is firming this morning following the release of the UK’s consumer price index.

July’s CPI figures reported domestic inflation accelerated to 1.1% from 9.4%, with a larger-than-expected increase placing more pressure on the BoE to deliver another 50bps rate hike.

The publication of the Eurozone’s latest GDP figures may act as the main catalyst of movement in the euro this morning, if the second estimate for Q2 growth shows any divergence from the preliminary reading.

Otherwise EUR exchange rates could be influenced by the accompanying employment figures, with another healthy expansion increase in employment in the Eurozone in the second quarter potentially buoying Sterling.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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