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August 2017

Sterling slips on UK inflation data but gets boost from positive wages growth

Published: Wednesday 16 August 2017

  • Sterling slips on UK inflation data but gets boost from positive wages growth
  • US Federal Reserve minutes awaited
  • Aussie wage growth slows
By David Johnson
 
UK Consumer Price Inflation remained steady at 2.6% in July. That disappointed markets that were poised for an increase and, as seems to be the pattern right now, it was taken as another excuse to sell the Pound. Sterling fell down into the €1.09 and $1.28 area yesterday, leaving all eyes turning to this morning’s UK wage growth data release. With inflation running ahead of wage growth right now, any narrowing of the gap is considered positive for the UK economy, although the forecast was for average earnings to have risen by only 1.8 percent. Anything higher offers a boost to the Pound, anything lower has the opposite effect.
 
On the news of better than anticipated wages growth results – at 2.1 percent instead of the expected 1.8 percent – Sterling recovered somewhat from its unexpected fall, strengthening approximately 0.19 percent against the USD and around 0.21 percent against the Euro, at the time of writing.
 
Markets, investors and the Bank of England will no doubt be keeping a close eye on rising consumer costs, which also increased by 2.6% in the same period, squeezing household spending.
 
We heard overnight that Australian wages growth has slowed from 0.56% in the three months to March to 0.48% in Q2.  The Reserve Bank of Australia made it clear they are not too worried about the labour market, but this dip in wage growth will add to their concerns over any kind of monetary tightening. No rate hikes are likely for the rest of the year.
 
There is not a lot of data to get pulses racing today. We do get US housing market data later on and the minutes from the last Federal Reserve Open Market Committee (FOMC) meeting. Meticulous scrutiny ensues, as traders and analysts try to deduce the direction and pace of US interest rate changes from the words of the committee. Little change is expected ahead of those minutes, but a nuanced comment could be enough to shift the US Dollar, so we will watch overnight moves with keen interest. Those who have a short term requirement may consider automated orders overnight tonight to protect against risk or take advantage of any spikes.
 
Later still, we will see producer price data from New Zealand. A slight fall is likely and that would weaken the New Zealand Dollar to a greater or lesser extent. We shall see.
 
And I have loved the story of the court artist who is being pilloried for his less than flattering depictions of Taylor Swift during her recent court case. My favourite quote from artist Jeff Kandyba is,” 'I'm always drawing people in my head and they always look way better in my head than they do on paper.” If that’s the case, I think I may be an artist myself.


It’s a thought

 
I want to make a Facebook account and the name will be ‘Nobody’. That way, when people post stupid rubbish, I can ‘Like’ it and it will say ‘Nobody Likes This’. And when they ‘Friend’ me, it will says ‘You are now friends with Nobody’.
 
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