UK household squeeze set to continue?

• Eurozone growth expected to remain robust
• Movement in GBP likely to be driven by wage data
• FOMC Minute may give insight into Fed policy plans

Eurozone PMI’s in focus

The Eurozone will be back in focus this morning with the bloc releasing its latest PMI estimates for businesses.

Data compiled by IHS Markit showed that the composite index dipped to 57.5 – lower than the expected 58.5 – in February after racing to a near 12-year high of 58.8 in January.

While this would suggest a slight slowdown in activity across the Eurozone’s manufacturing and services sectors, it is unlikely to enough to prompt any losses in EUR.

In fact the robust reading is likely to be supportive of the euro as it suggests that the bloc’s stellar growth in 2017 is likely to continue through 2018 as well.

UK wage growth may bolster GBP

The UK will publish its latest employment statistics this morning and GBP investors will be looking closely for any signs that domestic wage growth picked up at the end of last year.

Economists currently forecast that both wage growth and unemployment will have remained unchanged in December.

UK households came under considerable pressure in 2017 as wage growth lagged behind inflation for much of the year, forcing many families to rein in their spending, thus weighing on economic growth.

However with unemployment holding at a 42-year low, historic trends suggest that wage growth in the UK should now begin to pick up.

A surprise uptick in wage growth would be welcomed by markets as it would help to relieve pressure on consumers, and also increase the chances of the Bank of England (BoE) raising rates later this year.

FOMC minutes may shake USD

Looking ahead to this evening the release of the minutes from the Federal Reserve’s January policy meeting could prompt some volatility in the US dollar.

USD investors are likely to scour the Federal Open Market Committee’s (FOMC) accounts in an attempt to glean clues as to whether there is a swell of support for more than three rate hikes in 2018.

There has been considerable speculation in recent weeks over the possibility of the Fed seeking to hikes rates up to four times this year, but analysts remain split on whether there is any real chance of this happening.

The latest FOMC minutes will therefore grant markets an idea of how many policymakers may support accelerating the pace of monetary tightening this year.

Upcoming Data

Wednesday, 21 February, 2018
09:30                     GBP Unemployment Rate  
09:30                     GBP Wage Growth
19:00                     USD FOMC Minutes