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12 Nov 2014
The foundations of the next leg down in GBP/USD – SG
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Research at Societe Generale views any signs of a slowdown in the pace of the fall in unemployment to help keep rate expectations muted and GBP under pressure.
Key Quotes
"This morning’s main focus will be on UK labour market data and the Inflation Report."
"GBP/USD has been faithfully tracking the 2-yr UK/US rate spread, with a 40bop tightening in the last 6 months taking GBP/USD from 1.71 to 1.59."
"The UK rates market doesn’t price any hikes until late next year, so maybe a dovish inflation report has limited impact in the very short term, but further out, the consensus view that the UK will embark on a rate hiking cycle as the economy slows, and into the teeth of post-election fiscal tightening, must be somewhat questionable. It’s only a matter of time before UK 2yr rates are below US ones, it seems to me."
"Meanwhile, the foundation of expectations of eventual UK rate hikes is that wage growth will pick up. However, the relationship between wages and unemployment has deteriorated badly, if anything looking more non-existent than in the US. Rising unemployment saw wage growth slow in 2008/2009, but since 2011, the downtrend in wage growth has continued despite the fall in the unemployment rate."
"Any signs of a slowdown in the pace of the fall in unemployment will help keep rate expectations muted and GBP under pressure."
Key Quotes
"This morning’s main focus will be on UK labour market data and the Inflation Report."
"GBP/USD has been faithfully tracking the 2-yr UK/US rate spread, with a 40bop tightening in the last 6 months taking GBP/USD from 1.71 to 1.59."
"The UK rates market doesn’t price any hikes until late next year, so maybe a dovish inflation report has limited impact in the very short term, but further out, the consensus view that the UK will embark on a rate hiking cycle as the economy slows, and into the teeth of post-election fiscal tightening, must be somewhat questionable. It’s only a matter of time before UK 2yr rates are below US ones, it seems to me."
"Meanwhile, the foundation of expectations of eventual UK rate hikes is that wage growth will pick up. However, the relationship between wages and unemployment has deteriorated badly, if anything looking more non-existent than in the US. Rising unemployment saw wage growth slow in 2008/2009, but since 2011, the downtrend in wage growth has continued despite the fall in the unemployment rate."
"Any signs of a slowdown in the pace of the fall in unemployment will help keep rate expectations muted and GBP under pressure."