Slide in Oil Prices Offsets Benign UK Wages Data, GBP/USD Above 1.3000

October 16, 2024 - Written by David Woodsmith

STORY LINK Slide in Oil Prices Offsets Benign UK Wages Data, GBP/USD Above 1.3000

UK wages data reinforced very strong market expectations that the Bank of England (BoE) would cut interest rates at the November policy meeting.

The Pound to Dollar (GBP/USD) exchange rate dipped to 1.3035 before a recovery to 1.3070 as the dollar lost ground in global markets, although the overall range was little changed.

The 1.3000 area remains crucial for the pair. According to UoB; “a breach of 1.3125 would suggest that 1.3000 is out of reach.”

The major move overnight was a slide in oil prices amid reduced fears over an Israeli strike on Iran’s oil infrastructure and this curbed immediate defensive dollar demand and protected GBP/USD.

According to ING, the dollar rally; “is looking a bit stretched.”

It added; “Should we see more independent dollar out-performance, we could conclude that is due to some positioning ahead of the US election in three weeks from now.”

UK labour-market data recorded a decline in the unemployment rate to 4.0% in the three months to August from 4.1% previously and slightly below forecasts of no change.

Employment increased, but the number of people on payrolls was estimated to have declined 15,000 for September after a revised 35,000 decline previously.

Vacancies also declined by a further 34,000 in the three months to September to 841,000.

Headline wages increased 3.8% in the year to August from 4.1% previously and in line with consensus forecasts. The underlying increase also met expectations with a retreat to 4.9% from 5.1% and the lowest reading since June 2022.

Wages growth in the private sector slowed to 4.8% from 5.0% and the lowest reading since February 2022.

Ashley Webb, UK economist at Capital Economics, commented; “The further fall in wage growth in August, together with some signs that the labour market continued to loosen gradually, adds further support to widespread expectations that the Bank of England will cut interest rates from 5.00% to 4.75% at the next policy meeting in November.”

According to ING; “the more timely and reliable payroll data points to a jobs market that looks more like it did in 2019. That period saw wage growth of 3.5%, not the 5% we see today. It’ll take time, but that’s the direction of travel for wages over the coming months and if we’re right, it means faster Bank of England cuts.”

Kyle Chapman, FX markets analyst at Ballinger Group was slightly more cautious; “The report certainly won’t deter the BoE from cutting in November, although tomorrow’s CPI figures are likely to be much more significant.”

Overnight, US Fed Governor Waller stated that the most recent inflation data had been disappointing and this justified a slower pace of rate cuts than seen in September.

There was little change in net positioning with markets pricing in an 87% chance of a 25 basis-point rate cut in November.

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TAGS: Pound Dollar Forecasts