Pound Sterling Rallies Against Euro Dollar by Surprise UK Unemployment Decline

August 13, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Rallies Against Euro Dollar by Surprise UK Unemployment Decline

The Pound posted significant gains after the latest UK labour-market data with the Pound to Dollar (GBP/USD) exchange rate hitting 1-week highs just above 1.2800.

US and UK inflation data over the next day will be crucial for US interest rate expectations, risk appetite and the Pound.

The UK unemployment rate declined to 4.2% in the three months to June from 4.4% previously and below consensus forecasts of 4.5%.

The number of people on payrolls increased 24,000 for July after a 14,000 gain for June.

There was, however, a large increase in the claimant count due to technical changes while vacancies continued to decline.

Headline average earnings growth slowed sharply to 4.5% from 5.7% previously and in line with expectations.

This figure was distorted by base effects as NHS bonuses last year came out of the calculation.

There was a slowdown in underlying wages growth to 5.4% from an upwardly-revised 5.8% previously and the lowest reading for two years.

Private-sector wages growth slowed to 5.2% from 5.6% while public-sector wages increased 6.0% on the year.

This was a notably mixed set of data with markets wary over contradictory elements.

ING commented; “The surprise drop in the UK unemployment rate from 4.4% to 4.2% reported this morning will probably raise more concerns about data quality rather than offering clarity to the Bank of England.”

There were mixed views on the outlook for interest rates.

Capital Economics commented; “The further easing in wage growth will be welcomed by the Bank of England as a sign that labour market conditions are continuing to cool. This lends some support to our forecast that the Bank of England will press ahead with two more 25bps interest rate cuts later this year.”

Neil Birrell, chief investment officer at Premier Miton Investors noted evidence of a firm labour market; “The labour market is stronger than expected, with wage growth pretty much in line.”

He added; “The UK economy is performing well, which will be a boost to the new government, but there probably isn’t enough in these numbers to change Bank of England policy for now.”

According to ING; “There is probably enough to keep the Bank of England generally cautious on rate cuts. September still looks more likely to be a hold than a cut.”

US producer and consumer prices data due on Tuesday and Wednesday respectively will be watched very closely by markets and will have a significant impact on rate expectations.

ANZ commented; “Although the trend is moderating, inflation is too high for the Fed to justify the market pricing 100bp of rate cuts between September and year-end."

It added; “A material deterioration in the data or intensified disinflation process would be required to deliver that."

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TAGS: Pound Sterling Forecasts