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FX.co ★ Pound may extend rally

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Forex Analysis:::2023-04-19T09:17:13

Pound may extend rally

Pound continued to rise, while euro was slightly less fortunate. It seems that yesterday's data on the growth of UK wages intensified inflationary pressure, so pound managed to regain its strength.

According to the report, wages excluding bonuses for the three months to February of this year increased by 6.6% compared to the previous year. The pace remained the same as in the previous period, which was also revised upwards. Economists expected the growth rate to slow down to 6.2%.

Pound may extend rally

The surge in wages will reflect on Prime Minister Rishi Sunak, who recently called for wage restraint to fulfill his promise of halving inflation by the end of the year. However, the call could not prevent strikes of workers who are demanding that their salaries keep up with inflation.

Given that authorities, led by Bank of England Governor Andrew Bailey, expected wage growth to slow and cool inflation, it is likely that interest rates will continue to increase. How much it will climb will be discussed at the next Bank of England meeting, but more than half of the economists already believe that it will peak at 4.25%. Market players, on the other hand, expect a further 50 basis point hike this summer.

A more complete picture will be visible today after the inflation data for March is released. If there is no decline in the figures, sellers will not have a chance to short pound.

The unexpected rise in unemployment from 3.7% to 3.8% also did not have a significant impact as the employment level remained 0.2% higher than in the previous three months. This indicates that the economy continues to create jobs at a healthy pace, exacerbating the staff shortage which, according to business owners, forces them to raise wages. Employment during the reporting period had jumped by 169,000, more than three times the pace expected by economists. The number of job vacancies also decreased by 47,000, but remained historically high at 1.1 million.

In terms of the forex market, pound bulls continue to have control over the market. However, the quote has to consolidate above 1.2450 in order to trigger a much larger rise to 1.2480 and 1.2520. In case there is a decline, bears will attempt to take 1.2410, which could lead to a fall to 1.2380 and 1.2340.

Euro bulls also have a chance to continue a rally and update the highs, but in order to do so, the quote has to stay above 1.0950 and take control of 1.1000. This will allow a rise beyond 1.1035 and towards 1.1080. In case of a decline around 1.0950, the pair will fall further to 1.0910 and 1.0870.

Analyst InstaForex
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