By Craig Erlam
The UK continues to make progress toward cutting interest rates, but as has been the case throughout the last couple of years, the process is far from straightforward.
The good news is that wage growth is slowing at a good pace after peaking last summer and near-term trends are very promising. The bad news is that the labour market remains very tight and it’s still highly uncertain whether wage growth will fall to a level consistent with 2% inflation any time soon.
Then there’s the unemployment rate, which fell to 3.8%, but is no longer reliable as a sole indicator.
At a time when the Bank of England would like clarity on the labour market, it’s left to piece together a variety of data and surveys to form a judgment. Not ideal when central banks everywhere are petrified to move too early and risk stoking inflationary pressures again.
This is the first major economic release for the UK this week with inflation to come on Wednesday, GDP on Thursday, and retail sales on Friday. Ultimately, the CPI data is what matters most, but it would be handy if wage growth continues to slide between now and the May meeting if that is to be the live decision many expect it will.
The British pound is trading higher on the back of the release on the belief that Tuesday’s data is a small setback – wage growth not falling as much as expected and unemployment falling further. Wage growth is still cooling at a decent rate and the data over the next couple of months is arguably more important.
The MPC will only have data up to March in time for the May meeting, which is perhaps why markets are currently favouring a summer start for rate cuts.
Oil continues to drift higher
Oil prices are up almost 8% from last week’s low, but remain a little shy of the peak hit in late January.
The crude market remains very volatile, with events in the Middle East creating upside risks. Then there’s the global economy and interest rates, the expectations of which are forever changing.
Interest rate expectations have been pared back more recently, but traders remain upbeat on the economic outlook. Of course, the further back the first rate cuts are pushed, the less confident people will be, which could weigh on crude oil prices.
Gold choppy ahead of US CPI
Gold remains rangebound following quite a choppy start to the year.
The yellow metal has remained above $2,000 during this time which suggests traders are committed to the prospect of many rate cuts this year.
But in the absence of that first move or even a hint toward it, we haven’t seen a breakout in either direction. Perhaps the US CPI data later could tip the balance.
An important milestone for BTC
The post-ETF sell-off in bitcoin didn’t last very long and a break above $50,000 will be widely viewed as a significant milestone in its comeback.
It’s been a rough couple of years, but the ETF approvals were an important achievement that’s helped propel the price higher.
Many will now be hoping it goes from strength to strength, perhaps buoyed by the halving event in April.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
