UK Wage Growth Key to Long Term Sterling Strength

Market Analysis /
22 Feb 2018

The swings in Cable have yet again been crazy throughout today’s session as silly season continues for the dollar. This morning’s preliminary GDP numbers saw a slight miss, with the short-term sterling downside taking charge and moving the pair to test lows down at 1.3875. However, the dollar madness stepped back in, like it has for the rest of the week, with weakness prompting a rally to 1.3960’s.

The swings of the last couple of days have been brought on by a few different factors, mainly the central bank positions of both nations. The Fed minutes overnight pointed to the fact that we inflation was still a key sticking point on rates, despite a further rate hike in March showing 100% probability. The swings in the dollar are based on the pointing to and veering away from the prospect of four hikes this year. The current probability for four rate hikes in 2018 sits at 36 %, but every tick in this rate is leading to swings in the dollar.

On the other side of the coin has been a raft of UK news this week, with wages as one of the key drivers in any recovery the GBPUSD pair is making. After today’s UK GDP and the UK jobs report it seems that the wage data is going to be the front-runner for any market moves. Expectations are that wage growth in the UK, which came in at 2.5% ex-bonus, still below inflation, will rise above the 3% handle in coming months. This would greatly help the GBPUSD bulls, however, we must always be wary of the monumentally slow car crash that is Brexit. With constant meetings and rhetoric from both sides the risk of being whipsawed after a Brexit headline is quite high.

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