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Pound sterling: wages and Brexit to dominate the trading day

British pound daily update

BY DEB SHAW | 

British pound daily update

The British pound is currently flat against the euro and the US dollar, but higher against the Japanese yen and the Australian dollar. Today is an important day for the pound thanks to upcoming wage figures. As the Bank of England has suggested that future rate hikes are dependent on an improving labor market, accelerating wages should help cement expectations. On the other hand, if wage figures are weak, expect the pound to weaken accordingly. The odds for a rate hike in May (looking at bond markets) is around 80% today. As such, the expected hike is mostly priced into the currency. Turning to Brexit news, the pound strengthened yesterday after Business Insider wrote that the European Parliament would call for giving the UK "privileged" access to the single market. According to the report, the European Parliament is looking for a more flexible approach relative to Michel Barnier's strategy. In UK domestic news, Bloomberg is reporting that 62 members of the Conservative Party are demanding a quick and clean break from the European Union. While the group claims to back Theresa May, they have the numbers necessary to trigger a leadership bid against May. Key demands include allowing the UK to develop regulations independently and limiting the scope of the Brexit transition deal. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.    

GBP/USD is currently above 1.3980. EUR/GBP is flat, with the exchange rate above 0.8810. The pound is up against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7820, while GBP/CAD is above 1.770.

Looking at UK economic data this week, we’ll get UK employment data as well as UK inflation report hearings. Today is the most important day, and we’ll see the claimant count rate and average earnings. Bank of England Governor Mark Carney will also speak at the inflation report hearings. In recent history, Carney has adopted a more optimistic outlook on the UK economy (raising rate hike expectations). On Thursday, we’ll get Q4 GDP growth figures. Last week, the consumer price index was slightly ahead of expectations.

Updated 
Outlook
Bearish

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