The Pound (GBP) exchange rate is reacting to news headlines this morning, currently trending in a tight range against the Euro (GBP/EUR) and US Dollar (GBP/USD) after central bank, economic, and political developments have all taken place. The Pound to Euro (GBP/EUR) exchange rate is trading between interbank highs of 1.1307 and lows of 1.1281 today, while the Pound to US Dollar (GBP/USD) exchange rate trends between the regions of 1.3227 and 1.3268.
UK Wage Growth Falls as Unemployment Remains Stable, GBP/EUR in Tight Range
The UK’s Unemployment Rate number remained at 4.2% in the three months through May on the year. Meanwhile, Average Weekly Earnings softened from a positively revised 2.6% to 2.5% in the same time period, while Average Weekly Earnings Excluding Bonuses fell from 2.8% to 2.7%. Meanwhile, in positive news, the UK Employment Change stat printed above the 115K forecast to come in at 137K, following the previous 146K reading.
Industry expert Ed Monk commented:
‘While today’s figures may put wage growth above last month’s CPI inflation reading for May, any reason for British households to cheer could be short-lived as there is a possibility that we could see inflation jump back up and overtake wage growth when June’s CPI figure is released tomorrow.’
UK Inflation Reading Could Place Pressure on BoE Policymakers’ Interest Rate Decision – GBP Volatility Likely
Tomorrow’s British inflation reading will be closely watched by investors as one of the main economic indicators for the Bank of England (BoE) when it comes to monetary policy and could influence the Pound (GBP) exchange rate significantly. Many investors in Sterling are hoping for higher interest rates in August, which would push them above the 0.50% mark for the first time since the Global Financial Crisis a decade ago. However, investors were hoping for a hike in May that never came to fruition, and while there’s a high likelihood policymakers will choose to hike interest rates next month, there’s still plenty that could create some dovishness in the Monetary Policy Committee (MPC).
‘If inflation does jump back up after this weakening in pay growth then it adds to the conundrum for the Bank of England’s Monetary Policy Committee who are desperate to deliver a rate hike in August’s MPC meeting. Higher inflation would support that position but an absence of sustained real wage growth as well as ongoing fears about the impact that Brexit will have on the UK economy means that we could see the “unreliable boyfriend” make an appearance again if Mark Carney and the central bank is forced to make another U-turn come August.’
BoE’s Carney Warns on Brexit and Economic Impact of No-Deal
Meanwhile, BoE Governor Mark Carney has spoken in today’s session, voicing concerns on Brexit. With only a few months to go before we reach the deal deadline in October, Carney is worried that the EU hasn’t offered a solution for continuity derivatives contracts post-Brexit. Additionally, Carney suggested that a no-deal Brexit would have a major impact on the economy should Britain stumble away from the EU without an agreement, yet confirmed that the banking sector was adequately prepared even a hectic exit from the European Union.
In UK politics, the Vote Leave campaign has been fined after spending figures were revealed, showing the Brexit backed campaign broke the electoral spending law. The news has seen many ask for another referendum, calling the June 2016 vote invalid or illegitimate given the recent revelations.
The Pound exchange rate is likely to fluctuate on new developments in politics as Sterling continues to trade amid volatility which could heighten at any moment. The GBP/USD exchange rate may be particularly vulnerable to Fed Chair Jerome Powell’s testimony this afternoon to the Senate. The Euro is experiencing a quiet week for Eurozone data but is likely to experience swings against the Pound (EUR/GBP) on account of Sterling exchange rate movement.