In Thursday’s London session, the Pound Sterling (GBP) exhibited a subdued performance against its major peers. The British currency declined following the release of the United Kingdom (UK) Average Earnings data, a critical measure of wage growth that influences inflation in the service sector. This data has been a significant obstacle to the Bank of England’s (BoE) confidence in implementing interest rate cuts.
Wage Growth and Employment Data
Annual Average Earnings, both including and excluding bonuses, rose by 5.7% in the three months ending in May, a slowdown from the previous month’s figures of 5.9% and 6%, respectively. Despite this deceleration, wage growth remains higher than what is consistent with achieving price stability.
Simultaneously, the Office for National Statistics (ONS) reported that employers hired 19,000 job-seekers in the same period, a marked improvement from the previous reading, which saw a reduction of 140,000 employees. The ILO Unemployment Rate for this period remained steady at 4.4%, aligning with estimates and previous data.
BoE Interest Rate Outlook
Expectations for the BoE to begin reducing interest rates from the August meeting have diminished due to persistently high core Consumer Price Index (CPI) data for June. The UK’s core CPI grew steadily by 3.5%, driven by stubborn service inflation.
Market Movements: GBP/USD
The Pound Sterling edged lower, nearing the psychological support level of 1.3000 against the US Dollar (USD) during Thursday’s European session. Despite this decline, the broader appeal of the GBP/USD pair remains firm, as the Federal Reserve (Fed) is widely anticipated to start lowering its key borrowing rates from the September meeting.
US Dollar Trends
The scenario of increased expectations for Fed rate cuts is unfavorable for the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovered near a four-month low at around 103.70.
Inflation and Fed Rate Cuts
Firm speculation for Fed rate cuts has been prompted by significant signs from June’s CPI report, indicating that the disinflation process has resumed after stalling in the first quarter of the year. Both the annual headline and core CPI, which excludes volatile food and energy prices, decelerated at a faster-than-expected pace.
Cooling inflationary pressures have bolstered Fed officials’ confidence that price pressures are on track to return to the central bank’s target of 2%. Richmond Fed Bank President Thomas Barkin expressed optimism, citing broadening disinflation as “very encouraging.” Barkin added that policymakers would likely debate at the July policy meeting whether it is still appropriate to describe inflation as elevated, according to a Reuters report.
Related Topics:
