Foreign-exchange trading early in the week centred on upcoming UK labour-market statistics, particularly wage growth, a key input for the BoE’s inflation outlook.
After the MPC reduced rates in a narrow 5–4 decision, traders looked for signs that pay pressures were easing sufficiently to allow further gradual cuts.
Sterling consolidated near two-week highs against the dollar, supported by firmer risk appetite and anticipation of resilient GDP data later in the week.
For households and businesses, wage dynamics will shape real income trajectories into the autumn and influence demand for credit.
For gilt markets, softer pay growth could anchor inflation expectations and support duration, while upside surprises risk repricing BoE expectations and pushing up the short end of the curve.
The episode highlights how, in the current cycle, high-frequency UK data quickly transmit to FX and rates, affecting broader financial conditions.
With unemployment drifting up and vacancies normalising, investors expect wage growth to moderate, but the pace remains uncertain given sectoral mismatches and public-sector negotiations.
That uncertainty is why the BoE emphasised data dependence and the near-term balance of risks in its August minutes.
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