Buoyed by increased average earnings data, the UK spent most of Tuesday leading on the dollar and the euro. Though it fell behind the US currency by day’s end. However, this morning’s above expected inflation rise highlights the challenges facing the UK government.
The UK’s Office for National Statistics (ONS) revealed yesterday that average earnings were up by 6% and unemployment figures remained level. Analysts had feared widespread layoffs ahead of the new Employer National Insurance Contributions due to come in at the start of April, but they’ve yet to materialise.
However, that surprisingly good news for the UK government was diminished by this morning’s ONS data revealing UK inflation has risen to 3%, largely driven by increased food and transport costs.
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The markets didn’t immediately react, perhaps because of the Bank of England clearly telegraphed warnings of inflation. At the start of February, the Bank’s governor Andrew Bailey said he expected average prices to increase through the year, even as the Monetary Policy Committee voted to lower interest rates. The governor also stated earlier this month that these rises, the Bank planned to continue cutting the interest rate through 2025.
The dollar regained the lead on Tuesday afternoon following the US’s meeting with Russia. After five hours of talks, US secretary of state, Marco Rubio, claimed the two countries would explore “economic and investment opportunities which will emerge from a successful end to the conflict in Ukraine.” Since Russia invaded Ukraine in 2022, strict sanctions on Russian resources, natural gas in particular, have driven up energy prices. Any easing of those restrictions could lower prices and the cost of living while bolstering industry in the US and Europe.
Without positive data or announcements, the euro closely trailed the pound and dollar throughout Tuesday. With no more major data due to be published by the EU this week, the biggest impacts to the euro’s prospects could come from the US’s talks with Russia in Riyadh. The market may well become more volatile after Sunday’s elections in Germany.
