UK Wage Data Misses But Pound Bulls Hang On

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Market Drivers September 13, 2017
UK wage data misses
Dollar remains above 110.00 on USDJPY
Nikkei 0.45% Dax 0.04%
Oil $48/bbl
Gold $1332/oz.

Europe and Asia:
GBP UK Average Wage Gains 2.1% vs. 2.3% eyed
GBP UK Unemployment rate 4.3% vs. 4.4%

UK wage data came in cooler than expected knocking cable below the 1.3300 figure in morning London trade, but the pair remained well bid ahead of tomorrow’s BOE meeting with traders expecting a more hawkish tilt out of the central bank.

UK Average wages came in at 2.1% versus 2.3% eyed matching last month’s gains. The news was a disappointment to cable bulls as it suggests that real wages growth in UK remains negative and could weigh in consumer demand going forward.

Still other labor data was supportive of growth, with unemployment rate sinking to 4.3% from 4.4% the month prior and claimant count falling to -2.8K from 0.8K forecast. The UK economy continues to rack up impressively robust growth, but wage gains are lagging. This creates a conundrum for UK policymakers who no doubt would like to hike rates a few times in order to give them breathing room should they need to ease policy later on.

However, with Brexit uncertainty and persistence of negative real wage growth Mr. Carney and company find themselves in a difficult spot as they try to nip inflation in the bud while at the same time maintaining a benign credit environment for further growth.

Tomorrow’s BOE meeting and statement will be key, as traders keenly await the communique. If the BOE looks past the disappointing wage gains and focuses on the generally robust growth, rate hike expectations will soar and cable could trade to the key 1.3500 resistance level as the week proceeds. If on the other hand, BOE dismisses the inflation numbers, the disappointment from the market could send the pair back towards 1.3000.

Elsewhere today, the focus will turn to PPI figures in the US. The market is looking for a 0.3% from last month’s -0.1% print. Any string positive reading is sure to give the dollar a boost with USDJPY trading up to 110.50 and beyond if the data proves to be hot. After a vicious selloff over the past several weeks, the buck has found some support this week as bargain hunters have stepped in and any hotter than forecast inflation data could revive speculation of a December rate hike which would only add to the recovery rally in USDJPY.

North America:
USD PPI 8:30

Boris Schlossberg
Managing Director

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