Sterling edges higher as UK jobs data supports rate outlook
After falling to a two-month low in the previous session, sterling ticks higher on Thursday as stronger-than-expected UK labour data offers some support to the currency. The move remains limited against the euro, suggesting the rebound against the dollar largely reflects a recovery from Wednesday's selloff after hawkish signals from the U.S. Federal Reserve.
Highlights
- Sterling rises 0.17% to $1.332 after UK unemployment falls to 4.9% and wage growth holds at 3.4%, exceeding expectations.
- The euro gains 0.05% against the pound to 86.54 pence, reflecting sterling's partial recovery from Wednesday's 1% drop versus the dollar.
- Bank of England expected to keep rates at 3.75%, as jobs and wage data show resilience but underlying employment details remain dovish.
UK labour data and market reaction
As reported by Reuters, sterling rises 0.17% to $1.332 on Thursday after sliding 1% on Wednesday, when U.S. Federal Reserve policymakers signal they could raise interest rates this year.Economic data shows the UK unemployment rate falls to 4.9% in the three months through April, down from 5% previously. The number of people in payrolled employment rises by 2,000 in May, while annual wage growth excluding bonuses holds at 3.4%, above the 3.2% expected by economists.
The euro gains 0.05% against the pound to 86.54 pence, indicating that much of sterling's advance against the dollar is a bounce from the previous day's sharp decline.
Bank of England implications
The pay figures are likely to draw attention from the Bank of England, which is widely expected to keep interest rates unchanged at 3.75% later on Thursday.Luke Bartholomew, deputy chief economist at Aberdeen, says the stronger wage reading will interest hawks on the Monetary Policy Committee, but he does not expect the Bank to deliver a message as hawkish as the U.S. Fed did the previous night.
April's 100,000 drop in payrolled employees is revised to a decline of 53,000. James Smith, developed markets economist at ING, says the overall jobs report does not look too weak on the surface, but the underlying details still point to a dovish backdrop for the Bank of England and do not make the case for higher rates clear cut.
Our earlier coverage of UK wage growth and unemployment ahead of the Bank of England’s rate decision highlighted that pay gains remained elevated at 3.4% while joblessness stood at 4.9%. We noted that with rates expected to stay at 3.75%, policymakers were weighing whether inflation risks — including energy-price swings — could keep wage pressures sticky and complicate progress toward the 2% inflation target.
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