The British Pound (GBP) has maintained its recent gains against the Euro (EUR) and most of the G10 currencies during the initial week of 2024, primarily due to diminishing speculations of interest rate cuts. The currency's resilience is bolstered by a closely monitored survey of the UK labour market, revealing sustained wage pressures towards the end of the year. This has tempered expectations of an imminent interest rate reduction by the Bank of England (BoE).

The REC/KPMG Report on jobs survey disclosed an upturn in rates of pay growth from the lows observed in November. Additionally, the survey indicated a slower decline in both permanent placements and temporary billings. In December, the index for permanent staff salaries rose to 56.5, up from 56.0 in November, while the permanent staff placements index increased to 45.6, compared to 41.6 in November.

As the year commenced, the USD emerged as the top-performing major currency, closely followed by GBP. The key factor driving this outperformance of GBP and USD is the easing of expectations regarding the magnitude of anticipated rate cuts by both the Federal Reserve and the BoE. The BoE maintains that a rise in unemployment and a significant wage decline are necessary to bring UK inflation back to the 2.0% target consistently.

The Bank will only signal the need for interest rate cuts when it believes that inflation is on track to meet the target, with wages playing a pivotal role in this assessment.

The upcoming data schedule for the week includes a speech by the UK BoE Governor Bailey on Wednesday and the release of GDP m/m on Friday. Additionally, the US core CPI m/m and CPI y/y data will be released on Friday. Market participants will closely scrutinize these indicators for clues pointing towards a more gradual pace of interest rate cuts than initially anticipated at the beginning of the year.  GBP could continue to receive support if expectations of rate cuts further diminish.