Wednesday, 13 June 2018

Sterling gains despite weaker labour data; focus turns to Brexit debate

LONDON (Reuters) - The British pound edged higher on Tuesday as markets shrugged off weaker-than-expected wage growth data and shifted their focus to the start of a crucial parliamentary debate on amendments to Britain’s EU withdrawal bill.

The unexpected slowdown in wage growth adds to several recent signs of a British economy struggling to find momentum.

A raft of companies have announced store closures and job cuts, poor industrial production output numbers published on Monday hit sterling and businesses remain nervous about the slow progress in talks between Britain and the European Union over their divorce.

Analysts said that with sterling weak coming into Tuesday’s batch of data, the pound had likely bounced higher as there was relief the numbers came in close to expectations. Many traders will also be sitting on the sidelines before the Brexit debate in the British parliament and inflation numbers due Wednesday.

Total earnings, including bonuses, rose by an annual 2.5 percent, the Office for National Statistics said, down from growth of 2.6 percent in the three months to March.

The numbers are likely to cut expectations of a Bank of England rate rise in August, given the central bank has said it wants to see more wage pressures before it hikes rates.

Money markets currently price in a 44 percent chance of a 25 basis point hike in August.

David Madden, an analyst at CMC Markets, said the wages data had likely been priced in given the pound’s recent weakness but he still described sterling’s move higher as “odd”.

“The unemployment rate is almost negligible. It’s all about earnings and I can fully understand why the BoE wants to see wages rise,” he said.

The unemployment rate remained stable at 4.2 percent in the three months to April, in line with the previous period.

The pound rose 0.2 percent to $1.3415 after trading flat immediately before the data. Versus the euro, the pound remained 0.1 percent up at to 87.97 pence.

Attention now shifts to the first of two days of UK parlimentary debates about amendments to the EU withdrawal bill.

Prime Minister Theresa May faces a showdown in parliament with lawmakers later on Tuesday who want a “meaningful vote” on an eventual Brexit deal and to set the government’s “direction” if the house rejects the agreement.

“The pound is likely to weaken if the government is defeated in key amendment votes at least initially as concerns over political stability will heighten,” MUFG analysts said.

“However, the amendments, if approved, could ultimately help to soften the final Brexit outcome which would be more favourable for the pound.”

NEW YORK (Reuters) - The dollar held steady against a basket of currencies on Tuesday as data showed U.S. consumer prices rose in May, matching analysts’ forecasts and reinforcing the view the Federal Reserve would raise short-term interest rates gradually.

At 8:35 a.m. (1235 GMT), the index that tracks the greenback versus the euro, yen, sterling and three other currencies was down 0.01 percent at 93.566.

Reporting by Tommy Wilkes and Richard Leong

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