This morning, GBP is maintaining its position near the $1.28 mark, following the release of the UK jobs report. Unexpectedly, the unemployment rate in January increased from 3.8% to 3.9%, while the number of pay-rolled employees in February rose by 20k, falling short of the anticipated 25k. Average weekly earnings also came in below expectations, providing a positive outlook for the Bank of England (BoE). However, further advancements are necessary before any rate cuts are implemented.
On Monday, the sterling was close to its 7-month high reached on Friday, as investors strengthened their bullish positions in the currency, nearing 16-year highs. Subsequently, GBP/USD experienced a dip after data revealed a significant slowdown in Britain's labour market in February, marked by the largest decrease in demand for staff by employers reported by recruitment firms since the early 2021 coronavirus lockdown. Today's labour market figures from the ONS support the idea of a cooling UK labour market, with the unemployment rate increasing for the first time since July last year and vacancies dropping to 908,000 – the lowest since 2021. Additionally, total pay growth has slowed for six consecutive months, declining from a peak of 8.5% last summer to 5.6% in the three months ending January. Wages excluding bonuses grew by 6.1%, slightly below the expected 6.2%. Of particular importance to the BoE, annual private sector wage growth decreased from 6.2% to 6.0%.
While the BoE acknowledges positive movement, weekly earnings growth data still exceed levels consistent with the central bank's 2% inflation target. However, alternative wage growth data suggests ongoing progress, supporting the possibility of a BoE rate cut this summer. Presently, market indicators assign a 50% probability of a cut in June and anticipate three 25-basis point cuts in total for 2024. This stands in contrast to the four cuts priced in for the Fed and ECB, providing GBP with a slight advantage over its major counterparts.
