Home Daily Commentaries UK wage growth surges to 6.2% for the third straight month

UK wage growth surges to 6.2% for the third straight month

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Wednesday 19 February, 2025

Daily Currency Update

The Pound remained firm yesterday after wage growth accelerated which reinforced bets for a cautious rate cut path by the Bank of England, despite a weak economy. Private sector pay rose by 6.2%, the fastest pace in one year. This increase marked the third straight monthly rise in wage pressures. These levels are far above the UK’s 2% threshold for inflation and presents a very tricky situation for the Bank of England who would like to cut rates to fuel growth. Markets now expect the UK to not lower rates until May.

Sunday's German general election may result in a conservative-led coalition government that will face much pressure to revive their stagnant economy. If they fail to form a government this will create months of political uncertainty which will place downward pressure on the single currency. Investors will be watching to see how quickly a government can be formed and what measures can be put in place to relax the German “debt brake” in order to boost spending and fuel growth in the economy.

The US Dollar advanced yesterday garnering safe-haven bids amid tariff concerns and peace negotiations on the Russia-Ukraine conflict, which seems to be fraught with tension and miscommunication. Separately, US home builder sentiment tumbled to a five month low on worries that tariffs on imports would combine with higher mortgage rates to further drive up house costs. Markets are now pricing in 39 basis points worth of cuts by the Fed in 2025.

 

Key Movers

European leaders vowed to step up support for Ukraine if bilateral talks this week between Russia and the US lead to a hasty peace deal that may compromise European security. In Germany, the ZEW economic sentiment index climbed to 26 in February which lent support for the single currency. This was up from 10.3 in January and smashed expectations of 15.5 by a wide margin. This rising optimism is likely due to hopes for a new German government capable of action.

Bank of England chief economist, Huw Pill, said that he feels the main problem for Britain’s sluggish economy remained one of supply, including a shortage of workers. There are significant headwinds, however, when Rachel Reeves tax increases come into effect in April with one in three UK firms plan to reduce employee headcount. Britain’s unemployment rate is holding steady at 4.4% presently and analysts expect this to move higher as we move closer to mid-year.

Federal Reserve Bank of San Francisco President, Mary Daly, noted on Tuesday that the prospects of further rate cuts by the Fed this year remains “murky” in the face of policy uncertainty despite a positive lean to US economic factors. She noted that GDP growth and the labour market are solid and importantly there is no reason to be discouraged about inflation progress, albeit taking longer than anyone wants to normalise. Ms. Daly also said that monetary policy is in a good place and the Fed can move with ease when needed.

 

Expected Ranges

  • GBP/USD: 1.2590 - 1.2640 ▲
  • GBP/EUR: 1.2050 - 1.2100 ▲
  • GBP/AUD: 1.9805 - 1.9855 ▲
  • EUR/USD: 1.0430 - 1.0480 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.