Sterling a little softer

It was quiet enough in FX markets yesterday as the US was on public holiday, with the main currency pairs remaining within the tight ranges that have prevailed since the start of the new year. The pound is under a little pressure this morning after the release of slightly softer than expected wage data in the UK, dipping to $1.2670 against the dollar and to about 86.2p to the euro. The latter is also a touch weaker against the dollar at around $1.0920.

European bond yields nudged higher yesterday amid “hawkish” commentary from some members of the ECB. The head of the German Bundesbank, Nagel, said it’s “too early to talk about (interest rate) cuts,” adding that “maybe we can wait for the summer break” before having that discussion. His colleague, Holzmann, warned that “geopolitical threats” pose an upside risk to inflation, noting that “we should not bank on (rate cuts) at all for 2024.”

Wage growth in the UK softened in the three months to November according to data published earlier this morning, albeit it still remained elevated. The year-on-year increase in average weekly earnings fell to 6.5% from 7.2%, lower than the 6.8% expected, while underlying earnings growth (i.e. excluding bonus) slowed to 6.6% (from 7.2%), in line with expectations. The Bank of England will be pleased with the deceleration in wage growth, but will also want to see it continue to be confident of inflation falling back to the 2% target.

On the political front, the race for the White House has officially started with the Republican caucus in Iowa. Not surprisingly, Donald Trump won comfortably, well ahead of his two main  rivals.

It is quiet enough on the economic front today though the ECB’s  latest survey of consumer inflation expectations will be of interest. Bank of England Governor Bailey speaks on the UK economy at the House of Lords, while Fed member Waller talks about the outlook for the US economy and monetary policy.