Sterling rose back to the top of the past month’s range against the dollar on Wednesday, bouncing to $1.2952 after an initial dip following wage and jobs numbers that offered mixed messages about Britain’s economic prospects. Against the euro the pound was also 0.2 percent higher on the day, recovering from its weakest levels in five weeks to trade at 85.71 pence per euro.
Some analysts pointed to higher than expected growth in employment and a dip in the overall jobless rate for the January-March period as a positive signal for sterling as it struggles to break through $1.30. But while wage growth — long a missing ingredient in Britain’s economic recovery — came to 2.1 percent, that was still slower than inflation and only around half the pace of the years before the 2008 financial crash.
“The story for markets this week is higher inflation and lower wage growth. With productivity coming in lower as well, that adds up to a less rosy long-term economic outlook,” said Viraj Patel, a strategist at Dutch bank ING in London. “Stability is the word for sterling at the moment. We have some short-term bullish momentum but until you take away that longer term uncertainty, we are not going to get much higher.”
He and others in the market have pointed to the willingness of companies to hedge at current rates, locking in gains made since the announcement last month of a June 8 parliamentary election. That points to concerns that the pound will struggle to get any higher during 18 months of potentially volatile talks on the terms of Britain’s departure from the European Union.
Bullish investors, however, point to the robust performance of British consumer spending and growth over the past year and to the upward pressure that higher inflation may put on interest rates and the idea that Brexit risk is now largely priced in.
“Jobs created in the first three months’ of the year were 6 times higher than expected,” said Kathleen Brooks, head of market analysis with City Index in London. “The pound jumped …(but) 1.30 still looks like a stretch too far right now.”