UK wage growth faster than expected
The pound (GBP) rebounded from Monday’s concerning economic growth reading thanks to faster than expected UK wage growth – data that keeps alive the prospect of an interest rate rise before the year is out. Tuesday’s employment report not only showed average earnings – excluding bonus – exceeded expectations; it revealed that more new jobs were created than forecast in the three months from February to April. These figures were closely followed by the UK ILO unemployment rate figures for April, which held steady at 3.8% – a 44-year low.
On the other side of the world, the Australian dollar (AUD) was doing its bit to strengthen the value of the GBP to AUD rate. With the AUD held back by souring US-China trade tensions and the GBP boosted by the domestic job market – the UK economy’s shining light amid Brexit uncertainties – the GBP to AUD pair rose to its highest level so far in June.
Overnight, consumer confidence data from the Melbourne Institute and Westpac Bank showed sentiment dipped by 0.6% in June. According to Westpac senior economist Matthew Hassan: “This is a disappointing result given the cut in official interest rates this month and suggests deepening concerns about the (Australian) economy have outweighed the initial boost from lower rates”.
Brexit dominates Tory leadership race
Events in the political sphere are likely to keep GBP gains in check over the coming weeks, with markets attune to developments in the Conservative Party contest. And as we await Thursday’s first round of voting – when several candidates will be eliminated from the race to Downing Street – it has become increasingly clear that the Tory leadership rivals are split over the Brexit deadline – the single most important issue from a GBP perspective. From Andrea Leadsom’s promise that the end of October deadline will happen in “all circumstances”, to Mark Harper’s claim that it’s “not possible” to leave by 31st October.
Looking ahead
With no economic data releases of note from the UK until late in the day, attention turns to Reserve Bank of Australia (RBA) Assistant Governors Luci Ellis and Christopher Kent. The duo will be making speeches in Melbourne that could prompt some market volatility, given the focus on RBA rates following last weeks cuts. While this evenings RICS Housing Price Balance survey could also provoke movement in the GBP to AUD exchange rate, with investors anticipating another month of weakening prices.
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