GBP Peaks as Negative Wage Growth Dents Rate Rise Hopes
Traders pushed Sterling sharply higher in Tuesday’s session and did so again in early trade yesterday following Tuesday’s higher reads for UK inflation data, which stoked hopes of an early rate rise. The devil was in the detail however and Wednesday’s negative real wage growth data stopped the rally in its tracks, ahead of today’s key Bank of England interest rate meeting.
Cable traded up to $1.3328 on Wednesday morning but fell back through $1.3290/1.3283 just as quickly on the UK wage data. Sterling found a base around $1.3256 but has since broken below the uptrend line drawn from the September 5th lows. For now, sentiment is driving trade rather than specific levels with the US dollar offering little resistance when placed under duress.
Price pressures in the UK economy saw August CPI, RPI and PPI data all exceed forecasts, raising hopes of a rate raise. Yet, wages in the UK fell in real terms despite rising employment. This is a problem for both the BOE and UK consumers. Mid-2018 remains the point at which the UK central bank will likely move to raise rates unless we see further catalysts for change.