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Wages are rising, but by less than last month
Sterling had a positive start to the week, strengthening against all major currencies yesterday, including by close to 0.75% against the US dollar and Japanese yen. This morning it has declined a little, after earnings data fell slightly more than expectations, despite now being ahead of inflation.
The reason for most exchange rate movements lately is comments from central bankers on whether or not interest rate rises are over. The message yesterday was that in the UK maybe there is some way to go, while in the USA they could be over.
Huw Pill, chief economist at the Bank of England, said that there is more work to do to defeat inflation and hinted at more rate rises. With policymakers keeping a close eye on the labour market, he said that apparently fast-rising wages might be an outlier.
This morning we have heard that average pay has risen by an annual rate of 7.8% (including bonuses, 8.1%) in the third quarter, 1.1% ahead of inflation for the first time in two years. The unemployment data, incidentally, has been delayed for a week. The earnings data is being vewed by the markets as disappointing, sliding as it is from last month’s 8.5% including bonuses.
On the other hand, in the USA, Federal Reserve policymaker Harker indicated that interest rate rises were over in the US. He mentioned in particular that the housing market has been drained of buyers, but was confident that the US would avoid a recession and achieve a soft landing.
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GBP: Pound hit by moderating pay rises
The pound strengthened yesterday, ahead of a week of data.
This morning’s earnings data showed that interest rate rises may be starting to deter firms from agreeing large pay settlements. The rise was 7.8% excluding bonuses, showing a real terms (i.e. allowing for inflation) growth of 1.1%. However, wage rises are less high than in the previous period, leading to a weakening of sterling so far this morning.
A heavy data week continues tomorrow with inflation. The markets are not predicting a huge fall, with only a drop from 6.7% to 6.6% expected.
GBP/USD past year
EUR: Mixed day for euro
Yet another mixed day for the euro, strengthening against the dollar and yen but weakening against sterling, albeit not by much.
Yesterday there was some data on Italian inflation, but nothing to frighten the horses.
European Central Bank policymakers, like their brethren in the BoE and Fed, were speaking about monetary policy. Their chief economist Philip Lane said they would keep interest rates high until inflation was tamed, while its president Christine Lagarde reportedly told European finance ministers of her concern about oil prices, given events in the Middle east.
This morning we’ll get Germany’s ZEW Economic Sentiment Index, and tomorrow there are final euro area inflation readings.
USD: Fed’s policymakers air views
It was a negative day for the US dollar, with losses of more than half a cent against the pound, euro, Antipodean dollars and Swedish krone.
This was despite a real dearth of data, but with the aforementioned comments from influential policymaker Patrick Harker suggesting that rate rises are over.
There will be plenty of other comments from policymakers, including from Federal Reserve Chair Jerome Powell on Thursday, before the FOMC goes into purdah ahead of the Fed’s interest rate decision on 1st November,
This afternoon there will be retail sales and tomorrow housing data.
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