GBP/USD Climbs Higher on Strong Wage Data

Talking Points:

• UK Average Weekly Earnings (3M/YoY)(DEC) 2.1%, Expected 1.7%, prior 1.8%
• BOE sees CPI to rise “fairly sharply” after oil effect fades
• BOE voted 9-0 to keep interest rate at 0.5%, 9-0 to keep APF unchanged

UK economic data released today indicated a much stronger UK labor market recovery, and positive sentiment for Sterling bulls soared in response. UK Jobless Claims Change (JAN) was at -38.6K, better than the surveyed result of -25.0K as less people claimed unemployment benefits. Employment change (3M/3M)(DEC) was up more than double the 50K anticipated, to be 103K out of unemployment, and ILO Unemployment Rate (3M)(DEC) beat expectations at 5.7% compared to the forecast of 5.8%. Indicating a further strengthening of the labor market, Average Weekly Earnings (3M/YoY)(DEC) rose by 2.1%, much higher than economist expectations of 1.7%, signalling that prospects of a near term rate hike may be back on the table for the Bank of England.

The accelerating growth in wages and employment prompted the market to send the GBP/USD up by more than 60 pips, reaching for Monday’s high of 1.5439. This comes also in response to Band of England’s view that CPI will be rising “fairly sharply” after oil effect fades. The BOE minutes released today reveal members voted 9-0 to keep interest rate unchanged at 0.5%, also 9-0 to keep the BOE’s Asset Purchase Facility intact. The overwhelming positivity on the UK labor market and the BOE’s confidence in a sharp rebound on inflation levels shake off fears of prolonged stagnation in asset price growth, and sparks the hope that the UK may increase benchmark interest rates sooner rather than later.

The market will be looking ahead for the US Federal Reserve’s January FOMC meeting minutes at 19:00 GMT. The release should provide a further boost to market confidence to take on more risk, if the Fed’s tone is in line with consensual expectation of strong US economic growth that can justify a normalisation in monetary policy. But the market has yet to see just how much the Fed is factoring in the growing uncertainty for Greece, the effect of the ever strengthening US Dollar, and the possibility of a premature rate hike that could shut down the US's miracle recovery in its tracks.

GBP/USD (5 Min Chart) - Created using Marketscope 2.0

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Written by George Meng, any comments, suggestions, or feedback please email [email protected]