UK Wage Growth Beats Forecast to Boost Pound US Dollar Exchange Rate
A better-than-forecast acceleration in UK average weekly earnings encouraged the Pound to US Dollar (GBP/USD) exchange rate to extend its uptrend further.
The 2.8% uptick in average weekly earnings in the three months to January suggests that wage growth is starting to pick up more substantially, to the benefit of consumers.
Coupled with Tuesday’s dip in the UK consumer price index to 2.7% this improvement potentially signals an end in sight to the year-long wage squeeze.
Naturally, the positive showing also helped to bolster hopes that the Bank of England (BoE) will raise interest rates again in May, shoring up demand for the Pound (GBP) once again.
A smaller-than-expected uptick in public sector net borrowing for February offered further support to GBP exchange rates, boosting confidence in the underlying health of the UK economy.
Fresh US Dollar Strength in Store on Hawkish Fed Forecasts
While markets remained confident in the prospect of an imminent Federal Reserve interest rate hike this was not enough to dent the GBP/USD exchange rate on Wednesday.
Investors have already effectively priced in the impact of a 25bpt rate hike at this stage, leaving the US Dollar (USD) with little in the way of upside momentum.
Even a solid rebound of 3.0% in US existing home sales failed to encourage particular demand for the US Dollar, especially as the latest mortgage applications data proved a little less positive.
USD exchange rates could still find a rallying point in the wake of the Fed announcement, though, if the latest economic forecasts and dot plot are more hawkish in nature.
However, the prospect of more aggressive monetary tightening is less of a certainty, as analysts at TDS commented:
‘We look for changes in the statement to show an upgrade to the balance of risks and convey stronger conviction in the outlook. While markets have speculated about the risk of four 2018 hikes, we think the bar is too high to see a shift in the median 2018 dot but look for the 2019 dot to shift higher, signalling three hikes next year.’
If the general tone of policymakers tilts towards greater caution this could help the GBP/USD exchange rate make further gains tonight.
Further GBP/USD Exchange Rate Volatility Forecast on BoE Meeting Minutes
Further volatility is likely in store for the GBP/USD exchange rate in response to the Bank of England’s (BoE) March policy decision.
Although interest rates are forecast to remain on hold once again the Pound may find a rallying point if the Monetary Policy Committee (MPC) sounds a more optimistic note.
Signs of greater confidence amongst policymakers would give investors further reason to favour Sterling, boosting the odds of a May interest rate hike.
On the other hand, if the meeting minutes prove more dovish in tone the mood towards the Pound could sour once again.
Lingering jitters over Brexit could also weigh down the GBP/USD exchange rate ahead of the weekend, with focus shifting to the outcome of the latest EU summit.
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