GBP Falls as UK Real Wage Growth Drops to 3-Year Low
The Pound lost its gains against most of the majors yesterday following a negative UK labour market release.
The average weekly earnings index printed at 1.7% – substantially lower than the forecast of 2.0%. Such news does not bode well for the UK’s economic future, especially when viewed in conjunction with the previous day’s news that UK inflation is at a four-year high.
Political uncertainty continued to compel traders to sell Sterling, as Conservative talks with the Democratic Unionist Party (DUP) were put on hold with the London tower block fire.
Traders await today’s Bank of England rate decision (BOE) which is forecast to see interest rates remain at previous levels.
Euro Strengthened by Positive Industrial Production Data
Despite Sterling’s brief leap, it drifted lower against the Euro yesterday as traders sold GBP in reaction to the news that British wage growth figures had shrunk.
The Euro itself was strengthened by positive Eurozone industrial production data, which revealed growth from 0.2% to 0.5% in April.
Today’s forecast for the GBP EUR pairing will be dependent on the Bank of England’s rate decision and policy news, with future promises of raised interest rates likely to send Sterling higher against the Euro, and talks of easing likely to send it lower.
US Dollar Fluctuates Against the Pound, Fed Announces Interest Rate Increase
Yesterday morning the GBP/USD exchange rate continued its rally before falling on the news of negative UK wage growth figures. This back and forth continued throughout the day, however, as some key economic reports for the US fell short of expectations.
The US consumer price index dropped from 2.2% to 1.9% – below forecasts of 2%, whilst retail sales also missed their mark, dropping -0.3% when they were expected to hold steady. The ‘Greenback’ held its own in the evening, however, with the Fed’s announcement that it would be raising interest rates by 25 points – seeking a target between 1.00% and 1.25%. The US central bank declared that the economy was strengthening and that job gains were positive – overall an upbeat report.
Crude Oil Price Drop Hurts the Canadian Dollar
Sterling was protected somewhat from falling against the Canadian Dollar as crude oil prices dropped 2.8% yesterday, taking the value of the commodity to 46.88 US dollars per barrel. This was due to the Energy Information Administration presenting data that displayed larger than forecast US gas and crude oil inventories.
Australian Dollar Leaps on the back of Positive Employment Data
Sterling dropped against the Australian Dollar yesterday in the wake of continued political uncertainty and negative UK wage growth figures.
The ‘Aussie’ itself saw gains against most majors this morning following a positive domestic employment report. Australian employment leapt by 42,000 in May, well above forecasts of a 10,000 gain. As the Reserve Bank of Australia (RBA) had previously expressed concerns about the domestic labour market, this result was well received.
Sterling’s ability to rally today against the ‘Aussie’ is largely dependent on the Bank of England’s policy and rate decisions later today, though its options seem limited.
New Zealand GDP Lower than Forecast, Sterling Falls Regardless
Sterling fell against the New Zealand Dollar yesterday due to the negative domestic data. In the evening, however, GBP/NZD recovered slightly as it was announced that New Zealand’s GDP only saw a 0.5% increase – lower than the forecast of 0.7%, and reducing hopes that the Reserve Bank of New Zealand would have to increase interest rates.
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