Pounds Steadies Upon Optimistic Data Heading into FOMC Decision

Andamento del mercato - 14/12/2016

In another sign that the UK economy continues to sidestep the worst case scenario preached by the “Bremain” camp ahead of the summer referendum, the latest economic data shows broad-based improvements across the board.  Employment data released earlier in the session confirms that wage growth is strong as the jobless rate in the nation trends at an 11-year low of 4.80%.  Besides indicating that spare capacity is labor economy is rapidly shrinking, the positive wage growth of 2.60% during October highlights the growing inflationary pressures as greater earnings translate to stronger consumption.  This improvement was evident in the latest consumer price index figures released on Tuesday which showed inflation rising by the fastest rate in 2-years.  Headline consumer inflation printed at 1.20% on an annualized basis through the end of November, climbing well past the prior month’s figure.  Although part of the gains can be attributed to stronger economic activity, it is also a lingering function of the rapid depreciation in the UK Pound.

After deflationary concerns gave policymakers significant anxiety over the past year, the swift Pound devaluation has had a roundly positive impact on the state of the UK economy.  For one, it has helped improve the competitiveness of the export economy, with the most recent trade figures showing a 4.60% jump in exports, helping to shrink the trade deficit.  Furthermore, higher import prices are gradually being passed along to consumers as evidenced by the main factors behind the latest CPI gains.  The devaluation has also insulated growth after annualized GDP expansion rose to a 1-year high through the end of the third quarter.  While the Brexit decision could still weigh heavily on the economy during the first half of 2017, especially if Article 50 is triggered by the end of March, positive tailwinds from employment, growth, and inflation could force the Bank of England drop its accommodative stance, helping Sterling regain ground over the coming weeks and months.

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