GBP/USD has posted gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.2950. On the release front, British employment numbers were mixed. Wage growth climbed 2.4%, matching the forecast, and the unemployment rate dipped to 4.6%, below the estimate of 4.7%. The news was not as good from unemployment claims, which rose 19.4 thousand, well above the estimate of 7.5 thousand. In the US, there are no major releases on the schedule. On Thursday, the UK releases Retail Sales, which is expected to rebound with a gain of 1.2%. The US will release unemployment claims and the Philly Fed Manufacturing Index.
The Bank of England has been saying that Britons will have to get used to a lower standard of living, and the warning has become reality with the release of the latest wage growth report. Wages rose 21% year-on-year in the first quarter, resulting in real wages dropping for the first time since 2014, after adjusting for inflation. CPI, the primary gauge of consumer inflation, continued to move upwards, posting a sharp gain of 2.7% in April, matching the BoE forecast for inflation in the first quarter. This reading marked the strongest gain in CPI since September 2013. The BoE is expecting inflation to hit 3 percent, raising speculation that the central bank may raise interest rates to keep inflation under control. The weak pound has contributed to higher inflation, which has hurt wage growth and caused consumers to scale back on spending, a key component of economic growth.
The political turmoil which has gripped Washington appears to be spreading. The US media is having a field day, as the Trump administration lurches from scandal to scandal. On Tuesday, reports surfaced that President Trump asked former FBI director James Comey to end an investigation into ties between Russia and Trump’s former security adviser, Michael Flynn. Another brewing controversy is Trump’s passing of classified intelligence to the Russian foreign minister earlier this week. Trump initially denied the claim, but has since backtracked, admitting that he did share intel with the Russians, but that he had acted within his rights. With the Trump administration busy putting out political fires, investors are growing increasingly nervous that the president’s agenda for a stimulus package and tax reform will stall.
