The Pound Sterling moves higher to 1.2480 as investors see the BoE delaying rate cuts.
UK’s stable wage growth is limiting the slowdown in price pressures.
The US Dollar corrects despite the Fed’s stance towards keeping interest rates higher for a longer period.
The Pound Sterling (GBP) extends its upside to 1.2480 in Thursday’s European session. The GBP/USD pair moves higher, driven by a steep correction in the US Dollar and rising expectations that the Bank of England (BoE) will delay rate cuts until the November meeting. Like the Federal Reserve (Fed), the BoE is also expected to delay rate cuts, which has faded potential fears of policy divergence between them.
The major catalyst that forced traders to pare BoE early rate cuts is the slow progress in inflation declining to the 2% target due to steady wage growth. The labor market report for the quarter ending February showed that Average Earnings including bonuses grew steadily by 5.6%, higher than expectations of 5.5%.
For inflation to return to the 2% target, the annual wage growth excluding bonuses should be close to 3.5%. Higher wage growth feeds inflationary pressures as businesses pass on labor cost to end consumers. Also, households with higher income for disposal ramp up overall demand in the economy.
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