Wages data suggest BOE is on the right path, but Brexit is keeping the central bank and market expectations at bay
Despite the fact that headline wages printed their fastest growth since Q3 2015 and ex-bonus wage growth was the strongest since Q4 2008, the pound barely reacted. Sure, you can argue that there was already some "anticipation" leading up to the data with the pound gaining in the two hours ahead of the release.
But the muted reaction in the aftermath says a lot more about what trading the pound is like now. It's all about Brexit no matter from which angle you look at.
The data here confirms that the BOE is on the right path to hike rates and tighten policy. However, it will mean little to the central bank if no Brexit deal comes about and threatens to throw the economy into disarray.
And that's why we're not seeing any significant repricing of BOE rate hike expectations in UK markets as a result. The uncertainty brought about by Brexit and any deal is feeding a massive negative rhetoric that overshadows any positives that may come about from the economy.
As highlighted many times over the past month, the only good news that can help lift the pound as we head into the year end is that of a Brexit deal. Nothing else matters and until that happens, expect the pound to continue to be pressured.
