Pound bolstered by strong wage growth

Philip McHugh March 22nd 2018 - 2 minute read

The pound struck higher against the majority of its peers yesterday as the UK currency found considerable strength from a faster-than-expected uptick in wage growth in January.

Sterling is looking a little more mixed this morning however, with only GBP/AUD showing any real gains as the pairing jumps 0.4% to AU$1.8266. GBP/EUR is flat at €1.1465, GBP/USD edging higher at US$1.4167, but GBP/NZD is down at to NZ$1.9518, while GBP/CAD has weakened to C$1.8207.

Today could also see considerable movement in GBP with markets waiting to see whether the Bank of England (BoE) will look to raise interest rates in the coming months…

What’s been happening?

The pound surged against the majority of its peers yesterday on the back of some impressive employment data.
Yesterday’s data showed that unemployment unexpectedly fell from 4.4% to 4.3% in January, while the accompanying earnings figures revealed wage growth jumped to 2.8%.

The uptick in wages was particularly supportive of GBP as it suggested the pay squeeze on workers is finally coming to an end; something that may strengthen the case for the BoE to hike rates in the coming months.

The GBP/USD exchange rate was further bolstered on Wednesday evening following the conclusion of the Federal Reserve’s latest policy meeting.

While the Fed voted to raise US interest rates yesterday, as had been expected, with the move having been priced in some time ago it failed to provide any lift for the US dollar.

If fact USD plummeted as the Fed indicated that it would only target an additional two rate hikes this year, disappointing those investors who had hoped for a possible four hikes in 2018.

Meanwhile the disappointing Fed policy statement, helped to cut the GBP/EUR exchange rate’s advance short yesterday as the euro found significant strength from the sell-off of USD.

What’s coming up?

The pound looks poised for another sharp acceleration during today’s session as the BoE concludes its March policy meeting.

While current forecasts suggest that the bank is highly unlikely to make any changes to monetary policy this month, speculation of a possible rate hike in May will have investors clamouring to learn more about the BoE’s policy outlook.

However this could come back to bite the pound if policymakers signal that it may still be too early to implement another rate hike.
In terms of US data it’s looking quite quiet today, with only Markit PMI figures set to be released. This could leave the US dollar on the back foot, especially if market focus remains on the dovish outlook of the Fed.

Meanwhile, the euro may also find itself on the back foot during today’s session as the latest PMI figures suggest activity in the Eurozone’s private sector continues to cool at the start of 2018.

Written by
Philip McHugh

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