Although on Tuesday GBP/USD couldn’t maintain its hold on a 1.40 handle, yesterday it traded as high as 1.4075 ahead of the FOMC and was up against four of the five other currencies we track closely here. The exception was the Canadian Dollar, with GBP/CAD down more than half a cent to 1.8245. Once the Fed Statement was released and the USD sold off despite a somewhat higher forecast profile for official interest rates in 2019, GBP/USD extended its gains to 1.4150 though slipped back against the Aussie Dollar to be almost three quarters of a cent down from its earlier high near 1.8310. Overnight in Asia, the pound has traded up to a near 3-week high of 1.4170 before easing back to last night’s closing level.
There was arguably something for everyone in the UK labour market report, though on balance the message was definitely a positive one. Unemployment rose by 24,000 in the three months to January to 1.45 million yet there were 32.25 million people in work, 168,000 more than for the previous 3-month period and 402,000 more than for a year earlier. The Office for National Statistics noted the employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%; higher than for a year earlier (74.6%) and the joint highest since comparable records began in 1971. The unemployment rate, meantime, was 4.3%, down from 4.7% a year earlier and the joint lowest since 1975.
We wrote here yesterday morning that, “In its February inflation report, the Bank of England suggested that a 4.4% unemployment rate would begin to put upward pressure on wages. If this happens today, then the GBP might well find some more support.” This is exactly what transpired. The new figures show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.6% excluding bonuses, and by 2.8% including bonuses, compared with a year earlier. The squeeze on real earnings hasn’t officially ended as today’s numbers were for January whilst the CPI data are for February. But, if the wage data are repeated next month, then the 12-month run of negative earnings growth will finally come to an end; a relief not just for workers, but also for the UK Government and the Bank of England whose forecasts of a return to real pay growth have lately been consistently too optimistic.