British Pound Outlook Brighter as Wages and Carney Point to Immintent Rate Rise
The pound sterling saw positive trade after the release of strong UK employment data and signals that the Bank of England is moving closer to raising interest rates.
Data out of the UK mid-week gave the British pound a lift - the pound to euro exchange rate conversion shot higher by 0.84 pct to deliver levels above 1.37 again.
The pound is now firmly within its near-term range against the euro. While it does not necessarily signal a run back to 1.40 it does indicate that the floor at 1.36 is almost a sure-fire bet to protecting against sustained losses.
The pound to dollar exchange rate conversion meanwhile rose a percent to reach 1.55.
Be aware that gains against the US dollar could unravel on Thursday the 16th if the US Federal Reserve opts to raise interest rates. For now though the GBPUSD has seen a positive swing in fortunes according to analyst Karen Jones at Commerzbank in London:
"GBP/USD has seen a strong rebound from 1.5325/30 - enough to suggest further upside potential to 1.5540 possibly 1.5615, the August high. This guards the 1.58175 recent high. Intraday dips are indicated to halt 1.5450 ahead of anther punch higher through the 1.5520 55 day ma."
The pound was higher across the board with gains coming against all the majors.
Latest Pound/Euro Exchange Rates
  | Live: 1.1391▼ -0.13%12 Month Best:1.2162 |
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| 1.1004 - 1.1049 |
**Independent Specialist | 1.1232 - 1.1277 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
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Wage and Employment Data Boosts Sterling
Key data shows average earnings have surged for UK workers.
The Average Earnings Index (+Bonus) was expected to read at 2.5% but actually came in at 2.9% showing workers are enjoying larger-than-expected pay rises.
"Sterling rose more than half a percentage point against the dollar to 1.54, and by the same against the euro to 1.37 as the news supports those at the Bank of England who are signalling rates will need to rise sooner rather than later," says Andy Scott, economist at HiFX.
If the economy continues to grow at a reasonable rate, and wages continue to grow at 3% or more, Scott says we could well see the BoE regain its credibility and follow through with a rate hike early next year.
"If recent history has taught us something though, when it comes to Carney signalling a rate hike, we know not to hold our breath!” warns Scott.
Carney and Bank of England Colleagues Signal Rate Hike
The GBP was given a further boost on Wednesday when Bank of England decision makers appeared in front of parliament's Treasury Select Committee (TSC).
The hearing was intended to offer law makers insights into the most recent Inflation Report from the Bank and will feature big-hitters Mark Carney, Ian McCafferty, Kristin Forbes and Martin Weale.
Governor Carney repeated a comment he made in July and again in August that strength in Britain's economy probably meant a decision on rates will come into "sharper relief around the turn of this year".
Kristin Forbes meanwhile sounded a more urgent note saying rates would need to increase in the not-too-distant future and there was already very little slack remaining in the British economy, if any.
Indeed, data from the Office for National Statistics shows average hours worked fell a little in the three months to July.
"It is early days, but if sustained, that could point to further productivity gains in 3Q, which could offset some of the inflation impact from rising pay: firms can fund better wages from productivity increases instead of higher prices," says Robert Wood, UK Economist at Bank of America Merrill Lynch Global Research.
Wood says if wage growth and productivity growth are normalising, then underlying inflationary pressure should be as well, meaning core inflation should begin to pick up next year.
