Labour Market Weighs On Sterling

GBP

The pound dropped lower than its been in two weeks lows on Tuesday as employment data showed wage growth in the quarter ending March being lower than expected. Rates had been previously strong, but they slowed to 3.2%, lower than the expected number of 3.4% and down from the previous measure of 3.5%. Sterling was further hit when the data showed that employment growth had slowed to 99,000, well below the median forecast of 135,000.

This is a hit to hopes that we could see future interest rate hikes, as the Bank of England in the past has said that a rate hike would be contingent on strong wage growth to push up inflation. What is more certain is that that further hits to wage growth and employment numbers would signify that British businesses are suffering from the ongoing uncertainty over Brexit. There are continued worries that months of stockpiling in inventory amongst British firms could now rear its head in this quarter.

The prolonged uncertainty over the Brexit situation and cross-party talks also weighed on the pound, with the current impasse likely to lead to a breakup in the talks. John McDonnell, the Labour Shadow Chancellor, also stated that a customs union was absolutely key for the party. This added to fears about talks breaking down, as this has long been a red-line for many Tory lawmakers.

EUR

The euro fell yesterday after Italy’s deputy prime minister said the country is willing to break the European Union budget rules if necessary as a ploy to reinvigorate employment. The Italian crisis has played second fiddle to Brexit in recent headlines, but this is further evidence that the Italian concerns are still very much present. Matteo Salvini stated that “until we arrive at 5% employment, we will spend everything that we should and if someone in Brussels complains, that won’t be our concern”. This scenario would likely break the EU’s 3% deficit-to-GDP ratio and its 130-140% debt to GDP ratio.

Key Announcements

09:00 – EUR: Gross Domestic Product (QoQ); expected to remain at 0.4%
09:00 – EUR: Gross Domestic Product (YoY); expected to remain at 1.2%
12:30 – USD: Retail Sales Control Group (Apr); expected to fall to 0.4% from 1% previous