The day started in a similar way as yesterday for the British pound - with a sudden rush at an hour when market liquidity is relatively low (around 6 am GMT so during late Asian session but too early to see any European market activity). This time round it was a bounce back of 0.6% which made GBP the strongest G-10 currency. It failed to reach the 1.2270 resistance zone but nonetheless It remains in the lead together with AUD and NZD, despite receiving a hit from the labor market data.
Another rough start of the day for GBP, the reported low wage growth is an important insight about the labor market for the BoE, so it deserved some negative reaction of the cable; source: xStation5
The batch of labor market statistics can be called disappointing. Even if the employment increase slightly exceeded what the market expected, the wage growth measures are now more in the spotlight and both came quite weak. With inclusion of bonus payments the average weekly earnings growth scaled back from 2.6% YoY to 2.2% (vs. 2.4% market median) while the measure that excludes bonus payments showed 2.3% instead of 2.5%, down from 2.6%.
Surge of inflation has already eaten up the additional spending power coming from pay raises; source: Macrobond, XTB Research
Bank of England has taken a neutral stance, but is very interested in how the British households cope with the inflation surge that is damaging their purchasing power. We already have data on retail sales deterioration, so a poor reading of wages adds weight to the whole hypothesis and eventually may result in BoE turning a bit softer - it decides on monetary policy parameters tomorrow.
Weaker wage data comes at a moment when observers of the UK’s economic situation spotted worrying decline of retail sales dynamics; source: Macrobond, XTB Research
The cable is stabilizing just below 1.22 and might try to resume range trading bounded by the same levels as in the 8-12 Mar period. The consensus for the Brexit announcement moment seems to have already shifted to 27-30 Mar from ’this week’, but the GBP market remains crowded with speculative positions so the sudden shifts like the one in the early morning may still return.
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