UK inflation figures and stagnant wage growth a dangerous combination

Sterling has started to retract over recent days, with yesterday’s UK inflation figures doing little to steady the ship.

The table below shows the movement for a number of GBP currency pairs during the last month:

Currency Pair% ChangeDifference on £200,000
GBP/EUR2.5%€5,880
GBP/USD3.5%$9,040
GBP/CAD6.2%CAD $21,980

Rising inflation and stagnant wage growth are hardly an ideal combination and this could significantly handicap any major Sterling advances over the coming days and weeks.

The drop was most apparent against the EUR, where the Pound lost over a cent during Tuesday morning’s trading. Whilst it held position slightly better against the USD and the CAD, could we be seeing the end of Sterling’s run?

GBP/EUR exchange rates fell to a low of 1.1663 having traded above 1.19 at its recent high, which is one of the reasons I have been advocating that my clients should be looking to take advantage of these short-term market spikes.

The current market fluctuation is so unpredictable that I would not be prepared to gamble on the long-term and any sustainable improvement, despite the Pound’s recent upturn.

If we look back over recent months this is not the first time the Pound gained momentum, only for it to hit a huge amount of resistance under 1.20 and then retract. Whilst it is still trading around 1.29 against the greenback, this has more to do with a slowdown in the US economy and grave market concerns around President Trump and his seemingly gung-ho strategy to running the country.

Looking at the current GBP/CAD trend and it is hugely influenced by the Canadian economy’s trade balance figures, due to it being commodity based and as such the recent fall in oil prices has hit the CAD hard.

This leads me to the conclusion that investors are still very sceptical about the UK economy, as we head into what are likely to be a very tough two years of Brexit negotiations and all the potential pitfalls that come with this. The likely general election result did bring some investor confidence back, due to the political stability it will bring but it’s not been enough to drive Sterling’s value up significantly.

Key UK economic data

For those clients with a short-term Sterling currency transfer to make, there is some key economic data to keep an eye on over the next couple of days.

Today we have the UK’s official Unemployment rate at 09.30. The prediction of 4.7% is likely to have been priced into the current rates and is expected to remain unchanged from last month. If we see a figure outside of this, expect increased volatility for Sterling exchange rates.

Tomorrow investors will be monitoring UK Retail Sales figures, which are expected to show a big improvement to 1% from -1.8% last month. These will be monitored closely after last month’s poor showing and any further downturn is likely to heap more pressure on the Pound.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.

The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.