The British pound weakened against the US dollar, declining 0.2% to $1.2972, after the release of UK labor market data for the three months ending in January.
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UK average weekly earnings, excluding bonuses, saw a 5.9% year-on-year increase in the three months to January, according to the Office for National Statistics (ONS). This figure matched the growth rate from the previous three months and continues to surpass the January inflation rate of 3%.
Real Wage Growth and Redundancies
Despite matching previous figures, the 5.9% wage growth still outpaces inflation. Real wage growth, adjusted for inflation, increased by 2.2% compared to the previous year.
The ONS also reported a rise in redundancies. Between November and January, 124,000 individuals reported being made redundant, representing 4.2 out of every thousand employees. This marks an increase from 99,000 redundancies in the August-October period and constitutes the highest level since the November 2023-January 2024 quarter.
Dollar Index and Bank of England Decision
The US dollar index, which measures the greenback against a basket of six major currencies, remained relatively stable around 103.66 following the Federal Reserve’s decision to hold interest rates steady on Wednesday. The Federal Open Market Committee maintained its target borrowing rate in the 4.25%-4.5% range.
This data precedes the Bank of England’s (BoE) upcoming interest rate decision, adding further context to the pound’s performance. The steady wage growth above inflation could influence the BoE’s policy direction.
Pound Strengthens Against Euro
While weakening against the dollar, the pound strengthened against the euro, trading at €1.1932 on Thursday morning. While a stronger pound benefits British travelers with increased purchasing power abroad, it can negatively impact the UK economy’s competitiveness.
A stronger pound makes British goods and services more expensive for international buyers, potentially reducing exports and hindering economic growth. This can lead to decreased demand for UK products, discourage foreign investment, and ultimately impact living standards.
Gold Prices Surge
Gold prices reached record highs following remarks from US Federal Reserve Chair Jerome Powell. The Fed maintained steady interest rates but signaled a potential half a percentage point reduction in borrowing costs by the end of the year, contributing to the surge in gold prices.
