The pound rose on Tuesday, pulling away from 5-month lows against the euro following a surprise uptick in UK wage growth. Average weekly earnings, excluding bonuses rose by 3.4% in the 3 months leading to April, compared to 3.3% a year earlier and the forecast of a decline to 3.1%. The unemployment rate remained at 3.8%, its joint-lowest since January 1975, and the total number of people out of work dropped by 34k to just over 1.3 million.
With wage growth outstripping inflation, Bank of England Deputy Governor Ben Broadbent suggested the BoE are still looking to increase interest rates whilst their counterparts at the US Federal Reserve and ECB have signalled a more cautious stance and are expected to reduce rates this year amidst trade tensions and a potential slowdown in the global economy.
Despite the hawkish comments, analysts believe the BoE are more likely to reduce rates rather than raise then over the next year given the risk of a disorderly hard Brexit on October 31st. Presently, the BoE forecast the UK will avoid leaving the EU without a deal.
GBPUSD opened at 1.2673 and rose half a cent in the morning, dropped back temporarily in the afternoon before climbing again to close at 1.2728, the highest the pound has been this week.
GBPEUR rose sharply from a morning low of 1.1199 to 1.1238, fell back and then reached a 5-day high of 1.1244 as the session finished.
Data released in the US showed the overall Producer Price Index was up 1.8% from a year earlier, failing to meet expectations and down from April’s 2.2% advance.
Federal Reserve policymakers are due to meet on June 18-19 against the backdrop of rising trade tensions, slowing global growth and a sharp fall in Non-Farm payrolls last Friday which have all made experts believe an interest rate cut is just around the corner and potentially a second one by the end of the year.
On Monday the US reached a deal with Mexico to avoid imposing tariffs which has prompted a slight rise in risk appetite denting demand for the US dollar. Yesterday EURUSD followed Monday’s trend, rising from a low of 1.1313 to a high of 1.1337, almost matching last week’s 3-month high.