GBP/EUR strikes two-week high on record UK wage growth

The pound strengthened on Tuesday, in response to another record rise in UK wage growth.

Sterling continues to trade positively so far this morning, with GBP/EUR stable at €1.1660 and GBP/USD climbing to $1.2736. GBP/CAD has is buoyed at CA$1.7178, while GBP/AUD and GBP/NZD hold steady at AU$1.9690 and NZ$2.1294, respectively.

Looking ahead, will the pound build on these gains through today’s session after the UK’s stronger-than-expected inflation figures?

What’s been happening?

The pound rallied yesterday, following a record increase in UK wage growth.

Basic pay jumped from an upwardly revised 7.5% to 7.8% in June. The surprisingly strong figures strengthened Sterling sentiment as they buoyed Bank of England (BoE) interest rate expectations.

However, the accompanying unemployment figures ultimately capped these gains, after the jobless rate unexpectedly rose from 4% to 4.2% over the same period.

The euro also trended broadly higher on Tuesday. The uptick in the single currency was supported by a surprise improvement in German economic sentiment, as well as its negative correlation with the US dollar.

Meanwhile, the US dollar was left on the defensive yesterday, as demand for the safe-haven currency was undermined by a cautiously optimistic market mood.

This optimism was linked to the latest US retail sales figures, with stronger-than-expected consumer spending in July, indicating the US economy remained robust at the start of the third quarter.

What’s coming up?

The pound opens today’s session on the front foot, following the publication of the UK’s consumer price index.

July’s CPI figures reported headline inflation fell from 7.9% to 6.8% as expected, but that core inflation held steady at 6.9% rather than falling to 6.8% as forecast.

The stronger-than-expected core CPI figures appear to be lending some support to the pound this morning as they also help to bolster BoE rate hike bets.

Also coming up this morning will be the publication of the Eurozone’s latest GDP figures. Will confirmation the bloc returned to growth in the second quarter extend some support to the euro today?

Meanwhile, movement in the US dollar may be limited through today’s European session as USD investors await the publication of the minutes from the Federal Reserve’s latest policy meeting, later this evening.

The FOMC minutes will be closely watched by USD investors as they seek to gauge the Fed’s appetite for further hikes. If policymakers appear supportive of a September hike the US dollar may rally.