23 Sep 2013
Flash: Does the US have a better chance of a sustainable recovery; GBP/USD 1.6300 or 1.5600? – Societe Generale
FXstreet.com (London) - Kit Juckes, Global Head of Currency Strategy, marks the importance of a stronger real wage growth between the UK and US. Meanwhile, the range for GBP/USD looks to be 1.5600 and 1.6330.
Key Quotes:
“In the UK at any rate, there is absolutely no relationship at all between inflation, and the published unemployment rate”.
“There is a strong relationship in Japan but even in the US, while there is a relationship between wages and unemployment (especially if adjusted for changes in methodology), the unemployment/inflation trade-off is hard to find”.
“But in the UK it is so hard to find that it might as well be non-existent. The result is that in the UK, wages are rising by a paltry 1.1% while core CPI inflation is rising by 2%, whereas in the US, core CPI is at 1.8%”.
“At first glance, two conclusions jump out. Firstly, the US has a better chance of a sustainable recovery, thanks to stronger real wage growth, while the Fed has greater leeway to ignore recovery and keep policy accommodative given the low CPI and PCE measures of inflation”.
“the sources of UK inflation bear further thought”.
“inflation is being kept up by controlled prices, in things like education, transport, and the provision of utilities. All of these reflect the strains on services that require high levels of investment at a time when money (particularly public sector money) has been tight”.
Key Quotes:
“In the UK at any rate, there is absolutely no relationship at all between inflation, and the published unemployment rate”.
“There is a strong relationship in Japan but even in the US, while there is a relationship between wages and unemployment (especially if adjusted for changes in methodology), the unemployment/inflation trade-off is hard to find”.
“But in the UK it is so hard to find that it might as well be non-existent. The result is that in the UK, wages are rising by a paltry 1.1% while core CPI inflation is rising by 2%, whereas in the US, core CPI is at 1.8%”.
“At first glance, two conclusions jump out. Firstly, the US has a better chance of a sustainable recovery, thanks to stronger real wage growth, while the Fed has greater leeway to ignore recovery and keep policy accommodative given the low CPI and PCE measures of inflation”.
“the sources of UK inflation bear further thought”.
“inflation is being kept up by controlled prices, in things like education, transport, and the provision of utilities. All of these reflect the strains on services that require high levels of investment at a time when money (particularly public sector money) has been tight”.