Sterling was down 0.1% to $1.2995, having traded at a session high of $1.30125 right before the wage growth figures
The pound dropped on Thursday, but still headed for a fourth weekly gain versus the dollar, after another round of UK data fed into the view that the Bank of England may not have as much scope to reduce rates at its August meeting.
Official UK data showed average weekly earnings excluding bonuses – a key gauge of inflation pressure for the Bank of England – grew by 5.7% in the three months to the end of May compared with a year earlier, in line with median forecasts.
Sterling was down 0.1% to $1.2995, having traded at a session high of $1.30125 right before the wage growth figures.
The slight drop in wage growth will be welcome to the BoE, after the disappointing services inflation yesterday. There is still some key data to come before the August Monetary Policy Report but the decision is very finely balanced, according to Hetal Mehta, head of economic research at St. James’s Place.
On Wednesday, the monthly consumer price report showed service-sector inflation, another of the BoE’s areas of concern, held at 5.7%, while headline inflation stayed at 2%.
Economic growth is also picking up. A report on July 11 showed total British GDP rose by 0.4% in May, after zero growth in April, above forecasts for an increase of 0.2%.
Futures markets are attaching a 40% probability of a quarter-point cut to 5.0% when the Bank of England meets on August 1, down from 50% at the start of the week and from 60% at the start of July.
The pound crossed the $1.30 mark for the first time since July last year on Wednesday and is 2.1% higher so far this year against the dollar, making it the best-performing major currency of 2024, after last year’s 5.3% increase.
Much of the pound’s strength has been driven by a weakening in the dollar, as investors have priced in the prospect of a decline in U.S. interest rates that could materialise as early as September.
Over the coming six months, traders are betting on UK rates declining to nearly 4.60%, compared with an estimate of 4.25-4.75% in the US and above the projected 4.55% in New Zealand, currently home to the highest rates across the G10.
