Wage growth to decide next move in Pound

Since Bank of England (BOE) published its inflation report, suggesting no hike required from BOE in 2016, to keep inflation in check, pound has been struggling. This year's turmoil in financial markets, dovish commentaries and China has pushed it to 7 year low against Dollar.

Yesterday, recent recovery in pound also got halted, even with CPI coming better than expected. It's the subdued nature of CPI and recent poorer wage growth data that has been weighing on Pound

Pound can recover, only if wage growth rises substantially.

• As of now unemployment rate in UK stands at 5.1% and median estimate expects it to improve to 5% in today's reading.

• So major focus will be on earnings growth, since BOE policymakers in several instances announced they will be looking at wage growth component and current rate is not sufficient to generate targeted inflation. This component has gained sharply since last year, however slowing down in second half of the year. In last reading for three months' wage growth to November has dropped to 1.9% excluding bonus and 25, including it

• Today market is expecting slowdown further in earnings growth at 1.8% excluding bonus but to grow 1.9% including it.

Impact

• Data, coming as expected, would be further bearish for Pound as it would mean wage growth slowing down substantially.
   
• However any wage growth above 2.2% excluding bonus likely to boost sentiment.
   
• While better data might pause selloffs, but mitigating it won't be easy as weak inflation would keep weighing on rate decision.

Major focus for Pound is onto EU ministers' two day meeting starting on Thursday. Pound is currently trading at 1.426 against Dollar.