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Inflation higher, will wage growth follow?

17th May 2017 Market Update

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🇬🇧 GBP – Inflation for the UK was above expectation showing an increase in the price of goods and services. Inflation in most cases seen as positive news, however many cite that this as ‘Imported Inflation’ which has come about through the fall in the value of the pound in recent months. The Bank of England may also be worried as their 3% upper bound of inflation is nearing, which would ordinarily put pressure on the Bank to raise interest rates.

However traders and investors seem to be in the belief that the Bank will not budge on its current stance on keeping interest rates as they are and thus the pound fell as a result.

Also moving back to UK politics, The Labour Party released their official manifesto with a draft being leaked last week. Jeremy Corbyn announced it at a speech he gave in Bradford yesterday, however due to its general complexity, it may take a few days before it is analysed or even compared to that of other political parties.

Today we have quarterly average earnings figures set to be released at 9:30am, which is expected to improve from last month’s.

🇪🇺 EUR – The euro strengthened as GDP Flash figure came out in line with expectation, showing signs of resilience in the Eurozone.

Inflation data will be released for the Eurozone today, however traders expect limited movement off the back of this as this figure was already shown in the preliminary results.

🇺🇸 USD – The US dollar continued to fall in value following poor housing data. Trump was also accused of giving classified information to the top Russian Ambassador in a meeting last week, which he has defended as only giving them ‘facts’.

Crude oil inventories are out in the afternoon, which could move the US dollar after OPEC meetings this week agreed to an increase in oil output.

 

Key Announcements

🇬🇧 GBP
9:30am – Average Earnings and Unemployment Figures.

🇪🇺 EUR
10:00am- Inflation Data.

🇺🇸 USD
13:30pm– Crude Oil Inventories.

 

Our View: With the Bank of England sitting firm on their current interest rate policy, we may see further drops in the pound if they do not give a statement about how they wish to handle the increasing level of inflation in the UK.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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