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Forex - Sterling pares gains as UK wage growth slows

Published 15/03/2017, 10:06
© Reuters.  Sterling pares gains as UK wage growth slows
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Investing.com - Sterling retraced gains against the dollar on Wednesday after the latest UK jobs report showed that while the unemployment rate fell to the lowest since 1975, wage growth slowed sharply, clouding the economic outlook as Britain braces for Brexit.

GBP/USD was up 0.4% at 1.2197 following the report, from around 1.2229 earlier.

The Office for National Statistics reported that Britain’s unemployment rate fell to 4.7% in the three months to January, the lowest level since 1975.

Economists had expected the jobless rate to remain unchanged at 4.8%.

The number of people claiming unemployment benefits fell by 11,300 in February, compared to expectations for a decline of 5,000, the ONS said.

Average earnings, excluding bonuses, rose just 2.3% on a year-over-year basis, slowing from 2.6% in the previous month.

Including bonuses, average earnings rose by 2.2%, the slowest increase since April 2016.

The figures indicated that Britain’s labor market hasn’t been hit badly by the Brexit vote but the deterioration in wage growth underlined concerns that consumer spending will be eroded as inflation rises.

Parliament gave its approval to Prime Minister Theresa May’s Brexit bill on Monday, giving her the power to formally trigger article 50 of the Lisbon Treaty to launch divorce proceedings with the European Union.

The euro trimmed losses against sterling, with EUR/GBP at 0.8711, up from around 0.8694 earlier.

Meanwhile, the dollar remained subdued ahead of an expected interest rate hike by the Federal Reserve at the conclusion of its policy meeting later in the trading day.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.18% to 101.44.

The Fed was to make its latest monetary policy announcement at 2:00PM ET (18:00GMT), with futures traders pricing in around a 90% chance of a hike, according to Investing.com’s Fed Rate Monitor Tool.

With a rate increase seen as a near certainty investors were awaiting fresh cues from the Fed on the expected pace of rate hikes this year.

Fed officials previously projected three rate hikes in 2017, but that might move up to four, amid signs of a recent uptick in inflation and continued strength in the jobs market.

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