Sterling falls due to weak wage data

Wednesday this week witnessed Pound Sterling slide after assigning its strongest rally since June, right ahead of Bank of England (BOE)’s meeting taking place on Sep14.

Yesterday, the British Pound dropped from its 12-month high at 1.3329 to 1.3234, down about 0.4 percent in the European session. Compared to the Euro, this currency fell by 0.3 percent against, reaching the day’s low at 90.35 pence per euro.

The reason causing the decrease of GBP lately might be because global investors looked to take profits on the GBP-cross pairs and intended to wait & see the outcomes from BOE’s monetary policy meeting which is going to begin at 7:00 GMT today. According to a report on this Tuesday UK’s headline inflation had been confirmed surging to 2.9 percent, well above the central bank’s mid-term target of 2 percent in August, marking a record high level in more than five years. However, wage growth during the period from April to July 2017 remained lower than expected. In all likelihood, UK’s policymakers may have to delay raising interest rates until the beginning of the next year otherwise it could negatively affect UK’s economy which has already been sluggish.

As far as some economists are concerned, a more than 6.0 percent decline of the Sterling could entirely possible over the next six months if the BOE adopts dovish tone about the next steps for monetary policy in today’s talks.

“We’re seeing a little bit of a pullback in the pound and could see some weakness in the short to medium term,” said CMC chief markets analyst Michael Hewson. “But ultimately what wage data does do is shift the focus to tomorrow’s BoE meeting and really, the big question is how concerned is the central bank about a 2.9 percent inflation rate.”

Ranko Berich, head of market analysis at Monex Europe, appraised that the Bank of England could be in an “unenviable position” heading into MPC significant meeting starting within next eight hours because UK’s inflation turned above target but the wage and investment data, conversely, presented that the economy of the United Kingdom would continue to struggle.

Nevertheless, two members of the Bank’s Monetary Policy Committee have already balloted for hawkish steps in MPC monthly conference today. Therefore, Pound Sterling will likely trade higher right after the announcements given any supportive information for higher interest rates.
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