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Pound falls back from multi-month highs as jobs data disappoints

Philip McHugh April 18th 2018 - 2 minute read

The pound slumped during Tuesday’s trading session as some lacklustre wage figures forced the currency to relinquish some of its recent gains.

Sterling is struggling to make any headway this morning. GBP/EUR is holding steady at €1.1544, GBP/USD is muted at US$1.4277. GBP/AUD and GBP/CAD are both virtually unchanged at AU$1.8342 and C$1.7975 respectively. With only GBP/NZD showing any positive movement as it climbs to NZ$1.9517.

Today will see the release of the UK’s latest inflation figures, with Sterling likely to surge if the data supports suggestions of multiple rate hikes from the Bank of England (BoE) this year…

What’s been happening?

The pound dipped against most of the other majors on Tuesday, relinquishing some of its recent gains following the publication of the UK’s latest jobs report.

While unemployment unexpectedly fell to a new 42-year low of 4.2% in February, markets were left disappointed as wage growth failed to accelerate as forecast.

With wage growth failing to reflect the tightening of the UK labour market many GBP investors raised concerns that consumer spending could remain muted, despite a number of observers hailing the end of the UK pay squeeze.

The GBP/EUR exchange rate slipped around half a cent from its best levels yesterday as the pound was met by a broad based sell off.

However the euro’s advance was not without its own hurdles as confidence in the single currency was dented by the latest German and Eurozone economic sentiment indexes, which both printed below expectations.

After racing to a new post-Brexit high at the start of the session, the GBP/USD exchange rate fell back yesterday as some robust US data helped to extend the pound’s losses.

Better-than-expected US production figures as well as strong housing figures allowed the US dollar to edge up yesterday afternoon, with the currency able to hold onto its gains thanks to an easing in geopolitical tensions.

What’s coming up?

The UK will publish its latest consumer price index (CPI) this morning, with the data being a key indicator of whether the BoE will seek to accelerate its monetary tightening in the coming months.

Economists forecast inflation will have held at 2.7% in March, which will likely be enough for the BoE to lock in a May hike.

While a surprise dip is unlikely to upset these plans, it may prompt the pound to slide if markets fear it could dent the chances of a second hike later in the year.

The GBP/EUR exchange rate could also be supported by the release of the Eurozone’s own CPI report, with the euro likely to retreat if investors feel that the expected rise in inflation is still not enough to spur the European Central Bank (ECB) into tightening its monetary policy.

Meanwhile movement in the US dollar is also likely to be driven by central bank speculation today following a number of speeches by Federal Reserve policymakers, with the GBP/USD exchange rate likely to tumble if the recent US data leads to a more upbeat outlook from the bank.

Written by
Philip McHugh

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