Pound held back by disappointing wage growth and employment data
With one hand the Office for National Statistics (ONS) gives; with the other it takes away; on Monday the ONS gave the pound to US dollar pair a much-needed boost when it revealed the UK avoided falling into recession during the third quarter; yesterday, the ONS snatched those gains away with the release of its latest wage growth data.
A surprise easing in UK wage growth in the three months to September caused the pound to US dollar rate to stumble on Tuesday. That wasn’t the only disappointing data being served up by the executive office of the UK Statistics Authority yesterday morning: unemployment fell by 23,000 to 1.31 million over the same period, while the number of people in work also fell. The figures also revealed the largest annual drop in the number of job vacancies in almost a decade. All of which combined to raise expectations of a rate cut by the Bank of England (BoE) early next year.
Trump threatens escalation of trade war
The dollar spent much of last week benefitting from speculation that the US and China were finally closing in on a preliminary trade deal. Last night, however, the US President poured cold water on hopes of the two sides reaching an agreement any time soon, by threatening a new escalation of the trade war. Speaking at the Economic Club of New York, Mr Trump said US tariffs on Chinese goods would be “raised very substantially” if a truce couldn’t be reached with Chinese officials.
The pound vs US dollar rate could come under further pressure this morning if the latest UK Consumer Price Index (CPI) matches its forecast. Markets are anticipating a dip in the headline inflation rate, which would add weight to arguments for an interest rate cut in the coming months. And with the monthly inflation rate also forecast to contract, the GBP vs USD exchange rate will be looking for any support it can get today. That may come in the shape of the US’s very own CPI reading. If the data signals muted US inflation, bets will be on American monetary policymakers cutting interest rates as well.
The latest commentary from Fed Chair Jerome Powell will come under the microscope over the next couple of days. The dollar will be hoping he signals a sense of cautious optimism in the health of the US economy.
To discuss how these factors are likely to continue impacting cable exchange rates, get in touch with a member of our team on +44 (0)1494 360 899 or use the form below.