The British Pound faced selling pressure on Tuesday following the release of weaker than expected UK unemployment data. The readings from the data, suggest markets now raised the probability of an interest rate cut from Bank of England in March.
The UK shed around 11,000 payroll jobs in January, marking the fifth consecutive monthly decline in employment. At the same time, the unemployment rate rose to 5.2 percent, a five-year high and slightly above expectations.
Wage growth also cooled more sharply than forecast. Average earnings including bonuses fell from 4.7 percent to 4.2 percent, while earnings excluding bonuses also slowed to 4.2 percent. Slower wage growth is important because it reduces inflation pressure in the economy, which gives the Bank of England more room to lower interest rates.
As a result, markets increased bets that the Bank of England could cut rates as soon as next month, with the possibility of further cuts later in the year. Rising rate-cut expectations typically weigh on bond yields and the Pound, which is exactly what we saw after the release.
The data suggests the labour market is gradually cooling. Job vacancies have been broadly stable, but unemployment is rising, meaning more people are competing for available roles. Redundancies are also trending higher, and youth unemployment has risen noticeably. Businesses appear to be slowing hiring decisions following higher employment costs introduced after the Budget.
GBP/EUR 1.1469 GBP/USD 1.3594 GBP/AED 4.9946
GBP/AUD 1.9219 GBP/CHF 1.0452 GBP/CAD 1.8543
GBP/NZD 2.2472 EUR/USD 1.1835 GBP/ZAR 21.7759