Sterling Rallies on Positive Wage Growth Report
Upbeat data regarding wage growth and the unemployment rate in the UK strengthened the Pound against the US Dollar and the Euro. The Office for National Statistics (ONS) released data which showed that wage growth, including bonuses, bettered expectations coming in at 2.1% on a yearly basis in the three months to June. The unemployment rate fell to 4.4% in the three months to June, the best reading since 1975.
Eurozone’s economy expanded by 2.2% in the second quarter of 2017, on a yearly basis, beating forecasts of 2.1% growth. Mario Draghi, the head of the European Central Bank (ECB), won’t talk about the ECB’s monetary policy in the upcoming Jackson Hole Symposium, according to an ECB spokesperson.
Pound Sterling – UK Markets
Today, the Pound rallied against the US Dollar with the exchange rate set at $1.28. Sterling hit a ten-month low against the Euro early in the morning, before recovering its losses, with the exchange rate settling just below the €1.10 mark.
The reason for the Pound’s good performance against its two major competitors was the release of upbeat data regarding the UK average earnings, the country’s unemployment rate and the claimant count change. Average earnings, including bonuses, rose by 2.1% year-on-year in the three months to June, a figure much better than the anticipated 1.8%. Excluding bonuses, wages grew by 2.1% versus the expected 2%.
The UK’s unemployment rate ticked lower to 4.4% in the three months to June, surpassing analysts’ expectations that it would remain stable at 4.5%. This is the best unemployment rate figure in the last forty-two years. The number of people claiming benefits for unemployment in the UK was reduced in July by 4,200. Analysts had forecast that the number would increase by 3,700. Data showed that 32.07 million people are working in the UK, 338,000 more than a year earlier, while the number of employees on a “zero-hour contract” was reduced by 20,000 in the same period in 2016.
US Dollar – US Markets
The US Dollar rallied against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY), which measures the value of the US currency against six major competitor currencies, gained 0.2% coming in at 93.82.
Later in the day, the US Census Bureau will release data regarding the number of building permits and housing starts in July, which according to analysts are expected to record a minor drop, when compared with June’s figures. However, market experts are anticipating the Federal Open Market Committee (FOMC) minutes as they will scan them for fresh hints regarding the timing of the Fed’s balance sheet normalisation process.
A report by Barclays said that analysts should pay attention to how concerned the FOMC is with the incoming inflation data. Barclays’ economists suggest that the normalisation process will begin in September and stress that there is not sufficient cause yet to derail a likely December rate hike.
Euro – European Markets
The Euro dropped against the US Dollar with the exchange rate set at $1.17. Investors and traders expected the release of the Eurozone’s preliminary GDP data for the second quarter of 2017.
However, a surprise came from a Reuters report which said that Mario Draghi isn’t going to reveal something new about the ECB’s monetary policy, during his speech, at the Jackson Hole Symposium next weekend. News was regarded as negative by traders and a brief selloff cause the Euro to suffer losses. According to Eurostat, the Eurozone’s GDP expanded by 2.2%, on a year-to-year basis, in the second quarter of 2017, better than the anticipated 2.1%. On a quarterly basis, the Eurozone’s GDP expanded by 0.6% in line with forecasts.
The Italian GDP, in the second quarter of 2017, increased by 1.5% on a year-to-year basis, beating analysts’ expectations for a 1.4% expansion. On a quarterly basis, Italy’s GDP increased by 0.4%, meeting forecasts. Domestic demand managed to offset a weakening trade position. Moving to the north of the Eurozone, the Dutch GDP expanded by 1.5% in the second quarter of 2017, on a quarter-to-quarter basis, surprising economists who expected a 0.6% growth. This is the fastest quarterly growth pace for the Dutch economy since the Netherlands joined the Eurozone.
Other Currencies – Highlights
The Pound continued to drop against the Australian Dollar, trading at 1.63 AUD. A Westpac report said that Australian wages continue to underperform the labour market. Data released from the Australian Bureau of Statistics (ABS) showed that the Wage Price Index increased by 1.9%, which is a historical low, in the second quarter of the year. Westpac’s analysts note that low inflation and an ongoing job insecurity helped create for a meaningful shift in bargaining power to employers. At the end, their report suggests that wages will continue to underperform in the second half of 2017.
Sterling recovered a bit of ground against the New Zealand Dollar, trading at 1.77 NZD. The Business New Zealand lobby and the Corporate Taxpayers Group published a report in which they support the view that New Zealand’s corporate tax should be reduced to between 20% and 25% in the next ten years from the current 28%. Several major companies, which are members of those two groups, asked for a new tax policy that avoids time-consuming administration and complex legislation.
The Pound retained its value against the Brazilian Real, trading at 4.09 BRL. A Standard and Poor’s (S&P) report said that the Brazilian economy appears to have stabilised, despite fluid politics, and that the government is advancing its microeconomic reform agenda. S&P affirmed its long-term sovereign ratings on Brazil at ‘BB’.