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Pound firms as strong UK wage growth tempers BoE rate cut bets

Philip McHugh June 12th 2024 - 2 minute read

The pound strengthened on Tuesday after investors trimmed their Bank of England (BoE) interest rate cut bets in the wake of the UK’s latest jobs report.

Sterling is struggling to build on these gains this morning, with GBP/EUR muted at €1.1859 and GBP/USD flat at $1.2745. GBP/CAD is rangebound at CA$1.7514, while GBP/AUD and GBP/NZD hold steady at AU$1.9252 and NZ$2.0732, respectively.

Coming up, will the latest US inflation figures and Federal Reserve rate decision infuse volatility into the US dollar today?

What’s been happening?

The pound initially stumbled yesterday after the UK’s latest jobs data reported that domestic unemployment rose for the fourth consecutive month in April.

However, Sterling quickly found its feet as the accompanying wage growth figures proved more positive, with regular pay holding steady at 6% at the start of the second quarter.

As the Bank of England is acutely focused on how wages are fuelling inflationary pressures in the UK, this caused GBP investors to temper their bets on upcoming interest rate cuts.

The US dollar also attracted support on Tuesday amid an uptick in demand for safe-haven assets.

Investors appeared to be erring on the side of caution ahead of the latest US consumer price index and Federal Reserve interest rate decision later today.

Meanwhile, the euro came under additional pressure yesterday after ratings agency Moody’s warned that the recent announcement of snap elections in France poses risks to the country’s credit score.

What’s coming up?

Looking ahead, it’s set to be a busy day for USD investors as today brings the latest US CPI figures and Fed rate decision.

Up first will be the CPI release this afternoon. This is forecast to report US inflation held at 3.4% last month.

Another sticky inflation reading is likely to bolster expectations for this evening’s rate decision. While the Fed is forecast to leave its monetary policy unchanged this month, USD investors expect the bank’s forward guidance to be hawkish in tone, which could turbocharge the US dollar.

In the meantime, the release of the UK’s latest GDP figures has placed pressure on the pound this morning, after it reported economic growth stalled in April.

Finally, EUR investors may look to a series of speeches by European Central Bank (ECB) policymakers for fresh impetus today. Could a hawkish consensus help the single currency to claw back some of its recent losses?

Written by
Philip McHugh

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