Much of the recent (and future) improvement in the UK labour market is already priced in by both analysts and the common folk. The continue decline seen in both the Claimant Change and the ILO u-rate adds to the buoyancy of the sector. Furthermore, absolutely no-one doubts of the firm path of the recovery in the British economy. However, yet remains the question about the critical real wage growth, still lagging behind the recovery and entrenched in stagnant levels.
Another issue brought in by Governor Carney in recent periods is the amount of the slack in the economy, as nobody seems able to give figures…1% of the GDP? 2%? And this fact, this ‘uncertainty’, seems to be the perfect excuse for the MPC to keep kicking the can down the road when comes to interest rate hikes: nobody thinks the central bank will wait until 2016 to start the hiking cycle, and the end of the present year now seems unlikely. So… back to market consensus around May 2015?
In light of tomorrow’s Quarterly Inflation Report by the BoE, traders will look for any clue regarding the timing of the rate hike, and investors will scrutinize anything in connection with that ‘slack’ that prevent the BoE to be the first of the G4 central banks to hike rates.
In the meantime, waning expectations of a rate hike plus speculative positioning keep taking a toll on the sterling, dragging Cable from multi-year peaks in levels just shy of 1.7200 the figure to this week’s lows in levels last seen in early June, around the mid-1.6700s. The renewed USD strength has been collaborating with the downside as well, bolstered by a firmer momentum in the US economy. Levels-wise, the initial hurdle remains 1.6800 ahead of August top at 1.6890; the interim support lines up at 1.6750 followed by June low at 1.6698.
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