The Great Britain Experiences Another Blow To Their Currency British Pound As The Inflation Rate And Labour Market Data Disappoints Many Investors With Continuous Weak Economic Performance.
UK’s weak labour market data released on Wednesday by the Office for National Statistics (ONS) has had a great impact on the British Pound’s performance against other currencies in the market as investors were dismayed over the lack of growth and missed forecasts on the country’s consumer price index.
The euro gained 0.2% to 0.8496 against the sterling. The euros recent gains in the market can mostly be attributed to the declining value of the British pound seeing as there are currently no other indicators or factors that can affect the euro’s value.
Despite the losses of the sterling against the euro, the poor Eurozone data this week as well as a strong greenback limited extensive gains for the euro currency against the pound. The euro is also under pressure over concerns of Greece’s bailout, as well as the anticipation for a hard Brexit.
The pound was also down against the greenback by 0.32% to 1.2472. The US is currently sending good signals towards the economy’s wellbeing, as US President Donald Trump continues with his summits and meeting with other political world leaders, in alignment with his campaign platforms to improving America’s trade relations that could benefit the country most.
The greenback has also experienced a boost as the markets anticipate Federal Reserve Chair Janet Yellen is set to increase interest rates. Investors began to grow more bullish towards the dollar after Yellen hinted at an earlier rate hike.
Risk for Further Inflation
According to the ONS data, UK unemployment rate remained slow, only at 4.8%, the earnings excluding bonuses rose 2.6% from the previous quarter but declined 2.7% from a month ago. The wage growth also missed market forecasts of a 2.8% growth, only reporting a 2.6% increase for the months October to December 2016.
The ONS also warned that due to the weaker sterling, there are higher chances of continuous decline in consumer spending for the coming months.
The UK data was released following January’s report of an increased inflation rate by 1.8%, the highest rise since June 2014. The sudden climb in the inflation was due to Brexit results, which further pushed the sterling to drop in value, therefore leading import prices to increase as well.
Several analysts believe that the UK inflation can still reach up to 3% increase in 2017 as the Brexit process is set to begin in March.
Since consumer spending has been one of Britain’s sources of economic growth, any slow growth or squeeze on wages will likely end up in a further plunge in sterling exchange rates and should UK inflation rates continue to outgrow wage growth, consumer spending is likely to decline even more, which could lead to slower economic growth.
Bank of England previously stated that they will not enforce rate hike unless the central bank sees that the inflation rate isn’t as influenced by the weak sterling. Investors initially hoped for inflation rates to rise up to 1.9% YoY so that BoE would be pressured to tighten UK’s monetary policy.
The upcoming release of UK’s January retail sales this Friday will likely influence the Pound’s price movement, with the currency relying on the data for any possible gains.