- Pound (GBP) is falling after UK wage
- UK wage growth eased to 5.7% from 6%
- Euro (EUR) looks to the ECB rate decision
- No rate cut is expected
The Pound Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell 0.07% in the previous session, settling on Tuesday at €1.1893 and trading in a range between €1.1887 and €1.1911. At 20:00 UTC, GBP/EUR trades +0.04% at €1.1897.
The pound is falling after UK labour market data keeps hopes of an August rate cut from the Bank of England alive.
UK unemployment remained unchanged at 4.4% at a 2 1/2-year high; this was in line with expectations.
Meanwhile, wage growth eased to 5.7%, down from 6%, marking the lowest level in two years. This has lifted expectations that the Bank of England could cut rates from 30% at the end of the day on Wednesday to 40% now.
The Bank of England policymakers will be watching wage growth closely as it’s intrinsically tied to service sector inflation.
Yesterday, service sector inflation data showed that it remained sticky at 5.7%, defying expectations of a fall to 5.6%.
Meanwhile, the euro is rising ahead of the ECB interest rate decision later today. The ECB is expected to leave interest rates unchanged at 3.75% after cutting by 25 basis points in June.
The central bank is likely to signal that its next move will be a rate cut; however, ECB president Christine Lagarde could keep forward guidance vague.
Inflation in the eurozone was 2.5% year on year in June, down from 2.6% in May, but it remains above the 2% target. Meanwhile, wage growth remains sticky, which policymakers previously highlighted as a hurdle to cutting rates.
The market is currently pricing 40 basis points worth of cuts for the rest of the year, with the next rate cut expected to be in September and another potentially in December. Policymakers haven’t resisted these expectations in recent speeches.
