Surprise UK Wage Growth Acceleration Boosts Pound Sterling (GBP) Exchange Rates
As UK weekly earnings excluding bonuses unexpectedly rose 3.2% on the year in the three months to September this gave Pound Sterling (GBP) exchange rates a boost.
Investors took some comfort from this latest sign that domestic wage growth is picking up and remains in excess of the inflation rate.
With higher wage growth likely to result in increased consumer spending, improving the economic outlook, this stronger showing improved the case for the Bank of England (BoE) to raise interest rates again.
However, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate struggled to hold onto its initial boost for long.
The surprise increase in the latest unemployment rate and ongoing political jitters both limited the appeal of the Pound.
As James Smith, Developed Markets Economist at ING, commented:
‘But as ever, Brexit is the number one consideration, and there is some tentative evidence on the employment side of the jobs report that this is starting to cause problems.
‘Given the mounting uncertainty surrounding Brexit – in particular, whether Parliament will ultimately approve any deal Theresa May agrees – there is a risk we won’t know for sure that ‘no deal’ has been avoided until the New Year.
‘We therefore think the recent trend in employment is likely to persist in the short-term, and we are likely to see the economy as a whole lose steam over the winter.’
Food Price Contraction Fails to Prevent New Zealand Dollar (NZD) Gains
October’s New Zealand food price index proved disappointing, meanwhile, as the index showed a deeper contraction of -0.6% on the month.
This suggests that inflationary pressure within the New Zealand economy remains weak, something which is likely to keep the Reserve Bank of New Zealand (RBNZ) on hold for the foreseeable future.
Without signs of an uptick in price pressures the New Zealand Dollar (NZD) looks set to remain biased to the downside.
Even so, hopes that the US and China will deescalate their trade spat encouraged a fresh bout of market risk appetite and helped to shore up NZD exchange rates on Tuesday morning.
Further volatility is likely in store for the New Zealand Dollar ahead of the weekend with the release of the latest manufacturing and services PMIs.
Any evidence of slowing economic momentum could weigh heavily on demand for the ‘Kiwi’.
Rising UK Consumer Price Index May Dent GBP/NZD Exchange Rate
Further pressure may be in store for the GBP/NZD exchange rate on the back of October’s UK consumer price index data.
With the inflation rate forecast to pick up from 2.4% to 2.5% on the year this could limit the recent improvement in domestic wage growth.
Although higher inflation would put further pressure on the BoE to raise interest rates this is unlikely to prompt any actual shift from policymakers.
With Brexit-based uncertainty looking set to hang over the economic outlook for some time to come any increased pressure on consumers may leave the GBP/NZD exchange rate on a weaker footing.