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– Sterling bets on better-than-expected job market data
– Annual wage growth reaches highest level since financial crisis
– Bets again at the Bank of England to raise interest rates before the end of the year
The pound was seen in a rebound against the euro and US dollar on Tuesday, June 11, after UK labor market data showed wages continue to rise.
According ONS the data, average gains, with included bonuses, grew 3.1% in April, which was faster than the 2.9% expected by the growing markets.
The average yield rate, without bonuses included, grew 3.4% in April, bringing the year-on-year growth rate to 3.8%, its highest growth rate since 2008.
With inflation at 2.1%, UK consumers are in a position where pay is easily surmounting price increases.
"Sterling jumps above $ 1.27 and the single greenback G10 against the dollar after the nominal April pay raise increases by 3.8%, the fastest increase in a month since May 2008 (excluding bonuses)," says Simon Harvey, an FXS currency analyst. Monex Europe.
The hitting expectations saw the pound pick up an offer while the markets considered the data to keep alive the prospect of a Bank of England Interest rate increase being delivered before 2019 is out.
Above: The pound sterling increases against the euro following the release of UK labor market data.
Also proving support for Sterling, additional data showed that UK employment grew by 32K in the three months to April, where markets were actually expecting a contraction of 1K, ensuring that the UK employment rate was estimated at 76.1% , higher than a year earlier (75.6%) and the highest on record. The employment rate for women was 72.0%, the highest recorded.
"The UK labor market remains very resilient and unconcerned as the unemployment rate remains unchanged at a very low level. Considering that average earnings have continuously improved, we expect a somewhat optimistic BOE in the near future," he said. Marc-André Fongern, exchange research director at MAF Global Forex.
The exchange rate between the pound and the euro is quoted at 1.1223 following the numbers, being as low as 1.1193 at the start of the day. The exchange rate between the pound and the dollar is quoted at 1.2709, being as low as 1.2669. The data will come as a relief to the UK currency, which remains in a bearish low since early May, and we expect any strength to be short in nature as markets continue to focus primarily on the political dynamics of the Kingdom United.
Employment data suggests that the Bank of England could raise interest rates sooner than the financial markets expect. The data was released on Monday after comments by Michael Saunders on the BoE made on Monday that the bank would not necessarily wait until all Brexit's uncertainties were resolved before raising interest rates again.
At the moment the US Federal Reserve and European central bank are potentially looking to lower interest rates, this stance should provide support dynamics for the pound sterling against the dollar and the euro.
Pricing the financial market for future interest rates seems to betray an assumption that the BoE is more likely to cut rates than to raise them next year, reflecting signs that the trade dispute between the United States and China is harming the world economy.
However, some analysts point out that the United Kingdom is not as exposed to the dynamics of international trade as the US and the Eurozone, and therefore the reasons for Fed and ECB cut interest rates do not necessarily translate into a & # 39; sympathy & # 39; in the BoE.
If the markets back down on their expectations of a cut in the Bank of England rate and align them once again with the view that an increase in the 2019 rate is likely, then we can see Sterling find more support.
"This is a strong report from the labor market that reinforces the case of MPC members Andy Haldane and Michael Saunders who recently emphasized the need for gradual increases in interest rates," says Samuel Tombs, the UK's chief economist. Macroeconomics of the Pantheon. "As the labor market should not suddenly weaken and government policies continue to support faster wage growth, the MPC can not afford to ignore the constant inflationary pressure now issued by the labor market."
Image courtesy of Capital Economics.
Central bank rules of textbooks dictate that interest rates should rise in order to keep inflation at a sustainable level, and one of the main drivers of inflation is wage growth.
Commenting on the future of UK interest rates in a speech organized by the Institute of Directors at Solent University in Southampton, Saunders said. "We would probably have to go back to something like a neutral stance before the market project … I want to emphasize that the MPC does not necessarily have to keep rates suspended until all of Brexit's uncertainties are resolved."
In fact, the BoE has raised rates twice since Britain voted to leave the EU in November 2017 and August 2018.
Saunders says that the "neutral" interest rate is around 2.0%, suggesting that the UK can absorb a series of increases in interest rates.
Andy Haldane, chief economist of the BoE, meanwhile said in an opinion piece on Saturday's edition of Sun Newspaper that time was approaching "when a small increase in rates would be prudent to pinch any inflationary risks at the root."
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