Pound Sterling Jumps vs Euro and Dollar on UK Wages Rebound

December 18, 2024 - Written by Tim Boyer

STORY LINK Pound Sterling Jumps vs Euro and Dollar on UK Wages Rebound

Stronger-than-expected UK wages triggered a jump in the Pound on Tuesday while another weaker German data release undermined the Euro.

The Pound to Euro (GBP/EUR) exchange rate jumped back above the 1.2100 level from 1.2065.

The latest UK inflation data on Wednesday will cause further Pound volatility.

The Pound to Dollar (GBP/USD) exchange rate challenged 1.2700, but was hampered by wider dollar strength in global markets.

Although markets remain very confident that the Fed will cut rates again this week, traders expect more hawkish rhetoric and a signal that the rate-cutting process will be put on hold in the first quarter of 2025.

According to the latest ONS data, the UK unemployment rate held at 4.3% in the three months to October, in line with consensus forecasts.

The number of people on payrolls declined a provisional 34,000 for November after a revised 24,000 increase for October while vacancies declined for the 29th successive month.

The main focus was on wages given the importance for inflation expectations and interest rates.

Headline average earnings increased 5.2% in the year to October from a revised 4.4% previously and well above consensus forecasts of 4.6%.

Underlying earnings increased 5.0% over the year from 4.9% and above expectations of 5.0%.

ONS director of economic statistics Liz McKeown commented; “After slowing steadily for over a year, growth in pay excluding bonuses increased slightly in the latest period, driven by stronger growth in private sector pay.”

According to ING; “Of course, the Bank of England was already on course for a pause at this week's meeting long before these numbers emerged. We still have services inflation data to come tomorrow, though we expect this to remain stuck around 5% – which, like wage growth, is much too high for the Bank’s liking. We expect the next rate cut in February.”

Matthew Ryan, head of market strategy at global financial technology firm Ebury commented; “There is now effectively zero chance that the MPC lowers rates again this week, with today’s news raising the possibility of a unanimous vote among the committee in favour of no change.”

He also expects a relatively hawkish BoE statement; “The communications will place a heavy emphasis on the need for a ‘gradual’ approach to easing in 2025, which would likely raise doubts over the prospect of another rate reduction in February.”

The German IFO data recorded a decline to 84.7 for December from a revised 85.6 previously and compared with forecasts of 85.5.

The current assessment improved, but this was more than offset by a slide in the expectations component.

According to ING; “The only good thing about Germany's just-released Ifo index is that it is the final major macro indicator released this year. Time to take a breather and to end a year that will go down as the second consecutive year of economic stagnation.”

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TAGS: Pound Sterling Forecasts