19/10/2017 - Wage Growth Dip Casts Doubt Over BoE Rate Hike

GBP

Sterling dipped to a six-day low on Wednesday after data showed British wage growth was still lagging well behind inflation, feeding doubts over the Bank of England’s interest rate outlook.

Although investors still broadly expect the Bank to hike rates in November, when it releases its next Inflation Report, many are betting it will then keep them on hold for some time - perhaps throughout 2018 - and the latest numbers supported that view.

Wage growth came in slightly stronger than expected at an annual 2.2 percent in the three months to August, but the number of people in work rose by about half as much as it did in the three months to July.

The Bank’s new deputy governor distanced himself from the rate-setting committee’s majority view that interest rates probably need to rise soon, while another newcomer said her support for that position was “very contingent on the data”.

Policymakers also told parliament that upward pressure on inflation from sterling weakness would start to wane in the coming months.

Traders are now eying retail sales data due on Thursday for more clues on the health of the British economy, as well as a speech in Brussels to fellow EU leaders by Prime Minister Theresa May, who is trying to break a deadlock in Brexit talks.

EUR

European Union leaders are to agree on Friday on a calendar until the middle of 2019 detailing when to tackle various changes to the bloc, including deeper euro zone integration, to strengthen the EU after Britain leaves.

The calendar, called the “Leaders’ Agenda” sets out a timetable for discussions on migration, defense, the next seven- year budget, European parliament composition, trade, top EU jobs and deepening the economic and monetary union.

The discussions are inspired by French President Emmanuel Macron, who last month offered an ambitious vision for European renewal as a counterweight to the negative impact of Britain’s exit from the EU in 2019, officials said.

USD

New York Fed President William Dudley voiced his support for Fed Chair Janet Yellen’s comments over the weekend that the central bank was likely to continue its path of U.S. interest rate increases.

The outlook for continued policy normalization by the Fed and chatter about U.S. President Donald Trump possibly nominating a less dovish replacement for Yellen as Fed Chair when her term expires in February, have helped boost yields.

Key Announcements

09.30 – GBP – Retail Sales MoM; Forecast -0.1% against previous of 1.0%

13.30 – USD – Unemployment Claims; Forecast at 240K against previous of 243K