The pound fell against the rest of its peers on Wednesday as some softer-than-expected inflation data prompted traders to rethink their expectations of an August rate hike.
The pound starts today on solid form. The GBP/EUR exchange rate is holding opening levels of €1.16, while GBP/USD has risen 0.2% to US$1.44. The GBP/AUD exchange rate is up 0.1% to AU$1.85, the GBP/NZD exchange rate is up 0.4% percent to NZ$1.96, and the GBP/CAD exchange rate has risen 0.1% to C$1.80.
Read on to see why UK wage growth data could have a significant impact on the economic outlook and therefore the pound today…
What’s been happening?
Pound Sterling recorded strong gains yesterday versus the euro and US dollar, with markets hopeful that technical talks starting today between UK and EU officials would result in solid progress on the issues of trade and the Irish border.
Confidence in the improving Brexit outlook therefore prompted a surge of pound buying, helping push GBP higher across the board despite a lack of fresh domestic data.
Although the GBP/EUR exchange rate was climbing, the euro was actually in a solid position overall.
Markets were cheered by the news that the Greek government had managed to achieve a larger-than-expected budget surplus during the first three months of 2018.
This not only improves the likelihood that the nation will be awarded the next tranche of bailout funds, but also that the Eurozone’s weakest economy is beginning to find its feet again and may be able to successfully exit the bailout programme this year.
Meanwhile, the latest comments from US President Donald Trump were weighing on the US dollar yesterday, allowing the GBP/USD exchange rate to record solid gains.
Trump tweeted that China and Russia were ‘playing the currency devaluation game’, which suggests that the President is unhappy with the current strength of the US dollar; in a worst-case scenario this could even lead to steps to try to weaken the dollar and it was fears of this that prompted markets to sell.
What’s coming up?
It’s an important day for the UK economic outlook today, as February’s average weekly earnings figures could give an indication of whether consumer spending is likely to improve over the coming months.
Weak wage growth has been one of the barriers between the Bank of England (BoE) and hiking interest rates, so an uptick in pay growth would give Sterling a boost.
Meanwhile, the euro could be set to weaken if forecasts for the latest German and Eurozone ZEW economic sentiment surveys are accurate, as a weakening of sentiment is predicted.
As well as the US housing starts and building permits, manufacturing production, and industrial production data today, there will also be speeches from several officials from the Federal Reserve.
Key amongst these is likely to be an address on the ‘economic outlook’ from John Williams - a usually upbeat member of the Fed who could raise the dollar if he claims that interest rates need to rise faster than the central bank is currently expecting.
Joining the corporate trading desk in 2007, Phil now overseas 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 FSA approval and has completed the Certificate in International Treasury Management (CertiTM)