Sterling slips on falling real wages, soft retail sales data

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19 October 2017


The Pound fell to a one week low against its major peers this morning, receiving little help from yesterday’s labour report which showed that real wage growth fell further into negative territory in Britain in the three months to August.

s expected, the rate of unemployment remained unchanged at a multi-year low 4.3%, despite the jobless number actually falling by 52,000 in absolute terms. Average earnings data actually surprised to the upside with wages growing by 2.3% in the quarter through to August.

However, investors instead focused on the effect that negative real wage growth would have on output. With inflation at a sky-high 3%, real earnings growth of almost negative one percent is likely to put a significant squeeze on UK consumers in the coming quarters. Remarkably, the recent decline in real pay means that average earnings are no higher than they were in February 2006, even though the UK economy has expanded by almost 4.5% during that time.

This morning’s retail sales data was equally disappointing. Sales declined by 0.8% in September after investors had eyed a mostly flat reading.

Euro under pressure amid Catalan uncertainty

The Euro briefly edged back above the 1.18 level against the US Dollar this morning, although gains were capped with investors remaining concerned about the effect of the Catalan referendum. Catalonia’s leader yesterday pledged to press ahead with his independence bid if Spain was to suspend the region’s autonomy.

A number of ECB policymakers spoke in the Eurozone yesterday, although added little clues as to the future of the central bank’s quantitative easing programme ahead of next week’s Governing Council meeting. President Mario Draghi spoke on the topic of accommodative monetary policy, suggesting that low interest rates allowed room to implement reforms needed to boost economic growth. With no pieces of economic data on the docket in the Eurozone, traders will instead look to today’s Economic Council meeting.

US Dollar retraces from one week high

The Dollar touched its strongest position in over a week against its major peers at one stage on Wednesday, although retraced all of its gains during New York trading.

Investors remained focused on the diverging monetary policy between the US and Europe with recent hawkish comments out of the Federal Reserve causing the market to price in north of an 80% chance of a rate hike from the Fed in December. Comments from FOMC member William Dudley yesterday afternoon appeared supportive of rhetoric from Chair Yellen over the weekend that claimed the central bank would continue on its path of gradual interest rate hikes.

Economic data is relatively light on the ground in the US today with initial jobless claims and a speech from FOMC member George unlikely to materially shift the greenback. Expectation for future monetary policy from the Fed is likely to continue to be the main driver today ahead of next month’s central bank meeting.