Rise in UK wages boosts Sterling

Wednesday’s headlines were all about UK unemployment and a rise in wages. Morning data confirmed that the jobless rate remained at 5.5%, still the lowest level since August 2008 with 43,000 more people into new work compared to a month ago. More importantly were the average wage figures which have recently surpassed the dropping inflation level meaning that peoples income is now increasing faster than prices on the highstreet. April’s figures showed a better than expected wage growth of 2.7%, up from 1.9% previously.

This announcement somewhat overshadowed other releases such as the Bank of England minutes than confirmed a unanimous vote against any rate change, which is still pencilled in for spring 2016. The Euro-zone also confirmed that inflation levels were as expected and unchanged at 0.3% on the year, however it is the Greek situation that has the markets focus at present when it comes to whether or not to invest in the Euro. The current stance for the negotiations is looking increasingly unlikely that a deal will be made in time for Greece to make their IMF and ECB payments at the end of the month. This remains a very uncertain situation as simply writing off the €1.6bn debt is not an option that the creditors will take easily, and so don’t be surprised if we see a situation where those involved paper over the cracks at the end of the month and drag this situation out even longer. In the lead up to these decisions the Euro remains very volatile which has provided huge swings in the last month, with GBP/EUR rates testing the 1.40 resistance yesterday afternoon for the 5th time this year, each time failing and retracting to 1.35.

Last night the FED met for their interest rate decision and monetary policy statement. When the US will start raising rates is a big question on investors lips at present, with some speculating it could happen this year, but others concerned that the lack of growth and weaker data will not support this until 2016. Rates were held at 0.25% as expected and the statement was consistent with the belief that the current conditions of the labour market and inflation levels did not warrant an increase until improvements were seen. Janet Yellen re-iterated that the timing of a rate hike would be data dependant and any increases would be slow and gradual, however she did state that ‘most policy makers are anticipating a rate increase this year’ with markets sighting September as the likely earliest change on policy. This is likely to keep the USD on the back foot for another month or 2 providing some cheaper buying levels for Dollar purchasers before the greenback inevitably reclaims its number one spot. This morning GBP/USD is trading at the highest level since November 2014.

Today we have UK Retail Sales at 9:30am which are expected to drop sharply from last month, a result that could see recent gains eradicated very quickly if confirmed. The afternoon also bring US inflation at 2:30pm which is expected to recover to 0.2% from -0.2% previously.