Sterling fell to a one-month trough against a broadly stronger euro on Wednesday after data showed British wage growth slowed more than expected in June, taking some pressure off the Bank of England to raise interest rates. The BoE is closely watching the labour market as it judges when to raise rates for the first time since the start of the financial crisis in 2008.
The numbers released by the Office for National Statistics showed growth in average weekly earnings in the three months to June slowed to 2.4 percent on the year, from 3.2 percent in the three months to May and well below economists' forecasts of 2.8 percent in a Reuters poll. Sterling fell by around 1 percent on the day against the euro to 71.70 pence, its weakest since July 13.
Minutes from the BoE's latest monetary policy committee (MPC) meeting published last week showed just one policymaker voted for an immediate increase in interest rates, defying speculation that at least two MPC members would vote for a hike. "Today's reading is clearly one for the doves," wrote FX strategists at Barclays. "While not outright negative, the report still reminds us that the recovery in the labour market could disappoint."
"As (outgoing MPC member) David Miles said this week, reasons for him not voting for a rate hike included 'somewhat ambiguous signals from the labour market'." Against the Chinese yuan, the pound gained over 1 percent to hit an 11-month high of 10.0421 yuan, after China pushed its currency lower for a second day running. That move also helped the euro, as investors who had held euro-funded yuan positions bought back the single currency. Sterling rose half a percent to $1.5655 against a dollar weakened by the euro's strength and doubts over whether the US Federal Reserve could raise rates as soon as September given China's move to push down the yuan.
Weakness in the world's second-biggest economy could also influence the timing of the first BoE hike. "The market was obviously a bit disappointed after the minutes last week," said Morgan Stanley's head of European FX strategy, Ian Stannard. "So together with this evidence that things are maybe slowing a little bit that could put sterling under a little bit of pressure. For euro/sterling I think there's a chance of a rebound here," he said, adding that the euro could rise to as high as 74 pence in the coming weeks.
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