The Pound (GBP) weakened broadly against the majority of its most traded peers on Wednesday after the Bank of England (BoE) warned that the UK economy is facing geopolitical risks and slashed its forecasts for wage growth.
Against the US Dollar the Pound tumbled to a new ten-week low of 1.672, against the Euro, the Pound fell by 0.40% to trade in the region of 1.252
Investors reduced their bets for an interest rate hike occurring before the end of 2014 as the release of the weak wage growth data disappointed the markets.
Previously the BoE had stated that wage growth would be one of the key factors in deciding as to when rates will rise.
Data released by the Office of National Statistics showed that average earnings, excluding bonuses, increased by just 0.6% in the three months leading to June.
Including bonuses, pay fell by -0.2% during the quarter.
The decline marks the first drop in the first decrease since 2009.
The BoE also dropped its forecasts for wage growth.
It now expects pay to rise by just 1.25% in 2014, down from its previous forecast of 2.5%.
In 2015, it sees wages increasing by 3.25%, slightly lower than its previous forecast for a figure of 3.5%.
In 2016, however the Bank raised its expectations for pay from the previous reading of 3.75% to 4%.
A separate report showed that the UK’s unemployment rate dropped to 6.4% as the jobless total fell by 132,000 to 2.08 million in the second quarter.
Claims for unemployment benefits, a narrower measure of unemployment, declined for the 21st month in a row in July to the lowest level since 2008.
The 33,600 drop was more than the 30,000 economists had forecast. In June, claims fell 39,500 instead of the 36,300 previously reported.
‘Once again a strong employment performance is to be welcomed but concerns remain over wages. There is still good reason to expect that real pay will start increasing during 2014 but today’s disappointing performance pushes the wages recovery further down the road. It’s now almost impossible for average real pay in 2014 as a whole to exceed last year’s unless we see an unprecedented surge in wages during the rest of the year,’ said Adam Corlett, an economic analyst at the Resolution Foundation.
The Pound is likely to remain under pressure for the rest of the session and is likely to fall further against the US Dollar if the latest US retail sales data comes in positively.
Pound Sterling (GBP) Suffers Further Declination after Dovish BoE Inflation Report
The Pound Sterling has seen losses against most currencies today after the less-than-impressive domestic labour market data.
The release of the Bank of England’s Inflation Report has increased the already mounting problems for the UK economy. The committee has decided to maintain its current monetary policy which has been undeveloped since 2009. The dovish report has turned speculation of an interest rate hike before the end of the year on its head.
Tomorrow will see little change for the Pound as there are no domestic data releases.
Friday will be more pivotal, in terms of Sterling movement, with the year-on-year second quarter Gross Domestic Product Report due for release.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6724 ,
Pound Sterling,,Euro,1.2521 ,
Pound Sterling,,Australian Dollar,1.7992,
Pound Sterling,,New Zealand Dollar,1.9829 ,
US Dollar,,Pound Sterling,0.5978 ,
Euro,, Pound Sterling ,0.7985 ,
Australian Dollar,, Pound Sterling ,0.5523 ,
New Zealand Dollar,,Pound Sterling,0.5035 ,
[/table]
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