Today’s MPC member testimony in front of UK Parliament cast a particularly dovish tenor in the pound as UK monetary authorities clearly appeared reluctant to hike rates despite inflation data at five-year highs. The BoE officials are concerned that the slowdown in the Uk economy could turn into a recession if monetary conditions are tightened prematurely.
Tomorrow’s UK wage data will go a long way towards deciding which way the BoE will lean. Wage growth has been the principal concern of the more dovish MPC members, as real wages are now showing a -0.9% contraction. Tomorrow wages are expected to maintain the 2.1% pace of the month prior. If they print better than forecast than cable could catch a bid as some of the concerns would be allayed. However, if wages are worse than consensus at the same time as inflation remains stubbornly high, the cable is sure to take a hit and test the 1.3100 mark as hopes of any monetary tightening will be put on hold.
