Sterling's Dance: Wage Growth Challenges BoE's Cautious Path

Sterling declined slightly but remained near two-month highs as British wage data showed strong growth. This challenges the Bank of England's cautious rate cut strategy, with private-sector wages rising significantly, complicating inflation management. Investors are now focused on upcoming UK inflation figures and ongoing geopolitical tensions.

Sterling experienced a slight dip on Tuesday while remaining close to its recent two-month highs, as British wage growth accelerated, reinforcing predictions of a cautious rate cut path from the Bank of England. The pound decreased by 0.2% against the dollar, standing at $1.25995, just shy of Monday's peak of $1.2635.

The data from the Office for National Statistics showed a 6.2% rise in British private-sector pay, excluding bonuses, marking the fastest pace in a year. With average weekly earnings also up by 5.9% over the last quarter of 2024, wage pressure remains above the BoE's 2% inflation target, complicating plans to cut interest rates.

Investors reduced their rate cut speculations following the data, now expecting 58 basis points of easing. Meanwhile, BoE Governor Andrew Bailey maintained that recent employment data doesn't alter the bank's economic outlook. Traders are now focusing on the upcoming UK inflation report and geopolitical developments abroad.

(With inputs from agencies.)