Sterling had a positive start to the week, strengthening against all major currencies yesterday, including by close to 0.75% against the US dollar and Japanese yen. This morning it has declined a little, after earnings data fell slightly more than expectations, despite now being ahead of inflation.
The reason for most exchange rate movements lately is comments from central bankers on whether or not interest rate rises are over. The message yesterday was that in the UK maybe there is some way to go, while in the USA they could be over.
Huw Pill, chief economist at the Bank of England, said that there is more work to do to defeat inflation and hinted at more rate rises. With policymakers keeping a close eye on the labour market, he said that apparently fast-rising wages might be an outlier.
This morning we have heard that average pay has risen by an annual rate of 7.8% (including bonuses, 8.1%) in the third quarter, 1.1% ahead of inflation for the first time in two years. The unemployment data, incidentally, has been delayed for a week. The earnings data is being vewed by the markets as disappointing, sliding as it is from last month’s 8.5% including bonuses.
On the other hand, in the USA, Federal Reserve policymaker Harker indicated that interest rate rises were over in the US. He mentioned in particular that the housing market has been drained of buyers, but was confident that the US would avoid a recession and achieve a soft landing.
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