LONDON: The pound rose against the dollar and euro on Tuesday after data showed British wages rose quicker than expected in the last three months of 2022, adding to pressure on the Bank of England to continue to raise rates to bring down inflation.
The morning moves are vulnerable to being swamped however, by market reaction to US inflation data due later in the day which will likely set the tone for the Federal Reserve’s interest rate plans for the coming months, and drive markets globally.
The pound rose 0.53% against the dollar to an 11-day high of $1.2205 and also firmed against the euro, which dipped 0.2% to 88.17 pence.
Sterling edges lower ahead of key data
Tuesday’s data showed pay excluding bonuses rose by 6.7%, above the 6.5% expected by a Reuters poll of analysts, its fastest growth since records began in 2001 barring the pandemic period when data was distorted.
Signs that price and wage rises are becoming entrenched will raise pressure on the Bank of England to continue raising rates, something that would typically boost the pound.
Inflation eased in December to a 10.5% annual rate, but January’s reading, due on Wednesday, is expected to show it was still over five times the Bank’s 2% target at 10.3%.
Nomura analysts found a few nuances in the data - such as a fall in full time jobs - hinting that wage growth may be slowing. They still concluded: “Pay growth over recent months has still been strong enough, in our view, to justify another 25bp hike by the Bank of England at its March meeting, though of course we’ll have had another labour market report by then (and two CPI prints)”.
That is in line with a Reuters poll of analysts that the Bank of England will hike by another 25 basis points on March 23, taking the main rate to 4.25%, and then pause.
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