- Pound (GBP) jumps on record wage growth
- Wage growth rose 7.3% vs 7.1% forecast
- Euro (EUR) rose despite rising German inflation
- ECB expected to hike this month
The Pound Euro (GBP/EUR) exchange rate is rising, extending gains from the previous session. The pair rose +0.51% yesterday, settling on Tuesday at €1.1746 and trading in a range between €1.1678 – €1.1761. At 05:35 UTC, GBP/EUR trades +0.03% at €1.1749.
The pound hit its highest level since August 2022 after UK jobs data fueled expectations that the Bank of England will need to continue hiking interest rates. UK wage growth rose to 7.3% in the three months to May, well above the 7.1% the analysts had expected. The April reading was also upwardly revised to 7.3%, which is a record level of wage growth.
The earnings growth level is also a level of wage growth that Bank of England governor Andrew Bailey warned fuels inflation. Strong wage growth raises the likelihood of persistently high inflation in the UK.
The data did show some signs of weakness seeping into the labour market as unemployment rose to 4%. However, broadly speaking, the report will make for uncomfortable reading by Bank of England policymakers as they continue their fight against inflation. UK inflation data is due on the 19th of July.
The BoE will be watching consumer price index data next week closely. However, today’s wage growth data supports views that the central bank could hike rates by 50 basis points in August.
Meanwhile, the euro slips versus the stronger pound despite German inflation data showing that consumer prices in the eurozone’s largest economy rose to 6.4% year on year in June. This was up from 6% in May. The lift in inflation comes after months of steady declines in inflation levels and is a reflection of the base effect from government support in June 2022 when the government reduce rail costs and help with fuel bills.
The data highlights the struggle that the ECB has to bring down inflation. The ECB it’s widely expected to raise interest rates by 25 basis points in the July meeting and hike rates again by a further 25 basis points by October.