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Sterling continues poor run

Market probability of a rate hike from the Bank of England next week has dropped to less than a tenth from more than 90 percent a month ago.

Weak survey data from Britain’s services sector for April rounded off a disappointing streak of economic figures starting with last week’s shock first quarter GDP data and cautious comments from Bank of England Governor Mark Carney last month.

The focus today is on the US employment statistics. However, after a robust ADP reading on Wednesday, the likelihood is that the headline nonfarm payroll for April will rebound from the March 103k reading to around 200k.

While the unemployment rate is forecast to fall to a new 17-year low of 4.0%. It would need to be a truly shocking miss to see a market reaction.

With inflation starting to reach the Fed’s 2% target, but recent data not enough to shift them away from their current path of two more hikes this year, it would take a significant pick-up in wage growth to trigger the market to ‘price-in’ closer to three more hikes this year.

So far, wages have picked up only modestly despite a seemingly tight labour market, but there are now tentative signs of acceleration. We expect a 0.3%m/m rise and a slight uptick in the annual comparison to 2.8% from 2.7%. Fed speakers today include NY Fed President Dudley and his replacement, current San Francisco Fed President Williams.

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