The Pound Australian Dollar (GBP AUD) exchange rate’s attempts to mount a recovery were scuppered this morning as UK wage growth continued slowing.
Data released by the Office for National Statistics (ONS) showed that average earnings growth tumbled from 2.6% to 2.2% at the start of the year, the second consecutive decline after falling from a high of 2.8% in December.
The slump is particularly worrying for economists who are concerned that household finances will be squeezed by both anaemic wage growth and rapidly rising inflation.
Ian Kernohan, Economist at Royal London Asset Management said;
‘Regular pay growth was disappointing at just 2.3%, and with inflation rising, a squeeze on real household incomes is a major reason why we expect economic growth to slow this year. We expect the MPC to keep interest rates on hold until 2019 at the earliest.’
However Sterling was prevented from falling to a new weekly low by the release of UK’s jobless figures as the ONS reported that the Unemployment Rate fell from 4.8% to 4.7% in January, its lowest rate since 1975.
Meanwhile the Australian Dollar was bolstered overnight by reports that the National Australia Bank (NAB) is no longer forecasting that the Reserve Bank of Australia (RBA) will cut domestic interest rates this year.
NAB’s chief economist, Alan Oster, points to the rapid uptick in house prices in Sydney and Melbourne and the RBA’s focus on financial stability as the reason for the revision in rate cuts in 2017.
NAB’s forecasts are now in line with the rest of Australia’s four big banks, with the CBA, Westpac and ANZ all expecting rates to remain on hold this year.
However, the Australian Dollar is likely to be the bigger loser of the GBP AUD pairing this afternoon as forecasts that the Federal Reverse will raise US interest rates this month, with commodity markets likely to be impacted by a subsequently stronger US Dollar as most are priced in USD.
Meanwhile looking further ahead the Pound is likely to remain on its back foot for the foreseeable future as Prime Minister Theresa May prepares to trigger Article 50 by the end of March, with the uncertainty of two years of negotiations likely to drag on Sterling.
Current Interbank Exchange Rates
At the time of writing the GBP AUD exchange rate was trending around 1.60 and the AUD GBP exchange rate was trending around 0.62.
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