Pound v US dollar: UK jobless rate hits new 42-year low as GBP fails to capitalise
THE pound to US dollar exchange rate stumbled on Tuesday morning, hindered by news that wage growth was only slightly above inflation. It failed to capitalise on a drop in the UK’s unemployment rate.
According to data from the Office for National Statistics (ONS), UK wage packets rose by 2.8 per cent during the three months to the end of February.
This is unchanged from the previous period and missing the forecast of 3 per cent.
Despite coming up short, this is still a significant number and marks the first month of “real wage growth” with pay packets finally growing at a faster rate than inflation, on average.
This is great news for monetary policy hawks, with analysts now practically certain that the Bank of England (BoE) will move for a rate hike at the next meeting in May.
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Ruth Gregory, UK Economist at Capital Economics shared her thoughts on the results.
She said: “February’s labour market figures provide us with optimism that sustained rises in real wages are now in prospect and should seal the deal on another interest rate hike in May.
“Pay growth appears to be finally benefiting from the strength of jobs growth.”
The UK’s unemployment rate fell to a new 42-year low of 4.2 per cent, beating market expectations that it would hold steady at 4.3 per cent.
February’s labour market figures provide us with optimism that sustained rises in real wages are now in prospect
This tightening in the labour market also bodes well for wage growth down the line, especially with no signs of deceleration in the pace of hiring.
On a year-to-year basis, the pound is now the best-performing G10 currency versus the US dollar and the euro, a factor that could have provoked a small sell-off as traders engage in profit taking.
In the US, markets are currently waiting for housing starts, building permits, industrial production and manufacturing production readings.
The US dollar is currently rallying after yesterday’s lows.
Also significant will be speeches from US Federal Reserve Presidents John Williams, Charles Evans and Patrick Harker.
The Bank of England explains the exchange rate
Any indication of hawkish attitudes liable to put the pound US dollar exchange rate under even more pressure.
Markets will be keeping a keen eye out for any signs that the Fed intends to make four rate hikes this year, rather than three.
Tomorrow could prove even more important, with the UK’s consumer price inflation figures expected to hold year-on-year at 2.7 per cent and ease month-on-month from to 0.3 per cent in March.
On the political front, the ‘Greenback’ has also recovered from comments last night made by US President Donald Trump, who said China and Russia were playing the “currency devaluation game” whilst the US raises interest rates.
The dollar seems to be increasingly resilient as tensions over Syria de-escalate and concerns over a trade war with China fade.
