UK: Focus on BoE – BBH

Analysts at BBH suggest that the focus of today’s session is going to be on the Bank of England meet.

Key Quotes

“The market already was favoring a May hike, but Wednesday's employment and wage data bolstered confidence.  Record high employment (rising by twice what was expected) and the lowest unemployment rate since 1975 is helping underpin wages.”

“Three-month year-over-year growth in average base earnings in January was 2.6%, the highest since late 2016.  Moreover,  the government has lifted the freeze on public sector pay (more than a million NHS employees will get a three-year 6.5% pay increase), and minimum wage is set to rise (almost 4.5%) next month.  While the US and Japanese economists and policymakers are struggling with the Phillips Curve, it seems very much alive in the UK.”

“Following the EC decision to proceed with the next stage of Brexit negotiations had already given a boost to sterling.  Even though several divisive issues, including the Irish border, are not resolved, there is a sense that Brexit is gaining momentum and the risks of exit without an agreement have diminished.   The broad dollar decline after the FOMC meeting saw sterling rise a cent from $1.4050.”

“The modest reduction of Brexit uncertainty for investors and businesses and the labor report leave sterling poised to challenge the year's high seen in late January near $1.4345.   The euro has fallen back to the lower end of its six-month range against sterling (~GBP0.8700 area).  There is not much in the way of technical support, should it break, before GBP0.8600.  Prime Minister May's stance against Russia, which is much different than when she was Home  Secretary, appears to be strengthening perceptions of her leadership. Local elections in May could still be the key to her tenure.”