The Pound advanced against the New Zealand Dollar (GBP/NZD), Japanese Yen (GBP/JPY) and South African Rand (GBP/ZAR) on Wednesday after UK labour market data was published. The UK Unemployment Rate maintained its 42-year low at 4.3% in the three months through August, but average weekly earnings were lacklustre once again, at 2.2%. Employment Change also came in below forecasts at 94K, rather than the 181K expected.
One of the main concerns at the moment is weak wages amid a background of high inflation. This week consumer prices reached a five-and-a-half-year high, in what’s thought to be a result of Brexit and the weaker Pound exchange rate.
Bank of England (BoE) Governor Mark Carney has said on several occasions that UK households will face a difficult year with incomes being squeezed. However, not everyone believes that wages will pick up soon.
James Smith from ING commented:
‘Crunching the numbers, we don’t expect wage growth to go much above 2.1% or 2.2% before next summer. So whilst we expect headline inflation to peak at 3.1% next month, the gap between CPI [Consumer Price Index] and wage growth is likely to stay fairly wide for some time to come.’
Latest RF pay projection following average earnings figures today and inflation yesterday – pay squeeze set to deepen in the coming months pic.twitter.com/FWsB2Cc1tG
— ResolutionFoundation (@resfoundation) October 18, 2017
NZD Exchange Rate Weakens as Dairy Forecasts Downgraded
Meanwhile, the New Zealand Dollar fell against other currency majors on Wednesday after the latest dairy auction saw a fall in prices. As New Zealand’s largest commodity, any developments in the price of dairy can significantly impact the Kiwi exchange rate. ANZ Bank New Zealand downgraded its milk payout forecast as a result of the latest auction to reside in the range of NZ$6.25-6.50 per kilogram of milk solids. Furthermore, the New Zealand Dollar has been under political pressure after an unclear election.
ANZ Economist Con Williams said: ‘We continue to hold the view that until there is a greater degree of political clarity, moves higher are going to be difficult. Additionally, the softer GDT [GlobalDairyTrade] auction overnight and our milk price downgrade reinforced that some of the Kiwi’s previous supports are fading.’
BoJ Needs to Maintain Current Framework for Policy Easing – Sakurai
On Wednesday Bank of Japan (BoJ) board member Makoto Sakurai stated that the central bank needed to maintain its current ultra-loose monetary policy as inflation is still far below the 2.0% target.
Sakurai said: ‘As long-term growth potential improves, people’s perception of prices will change, which will raise the natural rate of interest. This will lower real interest rates and make monetary easing more effective over time. This is why it is vitally important to continue easing with our current framework.’
BoJ policymakers are scheduled to meet in the last few days of October. However, a more immediate influencer of the Japanese Yen will come this week when citizens vote in a snap election called by leader Shinzo Abe in an attempt to strengthen his hand. Abe is hoping for a larger parliamentary majority after polls reported a recent surge in support for the Prime Minister. His tough approach to North Korea and positive economic growth figures have recently improved his support, while his opposition party remains in disarray.
ZAR Exchange Rate Tumbles on Zuma Cabinet Reshuffle
The South African Rand weakened in the morning of Wednesday’s European trading on further political developments. South African President Jacob Zuma announced another cabinet reshuffle – the second one in seven months. This reshuffle saw Zuma change six ministers, including the decision to appoint Zuma’s close associate as the new energy minister. It’s thought that Zuma’s appointed his ally in a bid to push a nuclear deal through.
Meanwhile, South Africa’s Inflation Rate figure hit 5.1% in September on the year, up from the previous month’s 4.8% and bypassing the 4.9% forecast. The ecostat highlights the South African Reserve Bank’s (SARB’s) difficulty to boost growth amid rapidly increased prices. The economy is suffering with ‘stagflation’ – stagnant economic growth coupled with high inflation levels. August saw the SARB lower interest rates in its first downward rate adjustment in five years, in an attempt to bolster growth. Last month it failed to cut rates again with ecostats suggesting that inflation levels were under control.
Interbank Exchange Rates
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is trending at levels of 1.8480, +0.54% higher.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is trading in the region of 148.432, +0.28% higher.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate is hovering around 17.7601, +0.64% higher.