Pound slips as UK wage growth cools and unemployment rises
The Pound weakened slightly against both the Euro and the US Dollar after the latest wage data came in below market expectations.
Figures from the Office for National Statistics showed that total average earnings, including bonuses, rose by 5.3% in April compared to a year earlier. This was lower than the anticipated 5.5% and marked a slowdown from the 5.6% recorded in March. Excluding bonuses, pay growth stood at 5.2%, also a decline from March’s 5.5% and under the forecasted 5.4%.
The unemployment rate crept up to 4.6% from 4.5% as the number of pay-rolled workers in the UK fell by 78,000 over the three months to April—a decline of 0.3%.
Meanwhile, job vacancies dropped by 63,000, or 7.9%, between March and May, totalling 736,000. This was the 35th consecutive quarterly fall in openings. The average number of unemployed people per vacancy rose to 2.2 between February and April, up from 1.9 the previous quarter.
Together, these developments suggest the labour market is gradually losing momentum, pressured by rising business costs linked to higher taxes and increases to the minimum wage. This environment may lead to slower wage growth in the months ahead, which would ease inflationary pressures.
On the back of this data, the Bank of England could be inclined to lower interest rates on two more occasions before the year ends. Before the figures were released, markets had priced in a total of 35 basis points in rate cuts—essentially one full cut and a partial second. Market expectations have now shifted, increasing the likelihood of two full reductions.
This change in outlook triggered a mechanical reaction in currency markets, leading to modest declines in the Pound. Sterling fell to 1.1850 against the Euro from 1.1870 shortly after the data release. Against the Dollar, it slipped to 1.3522 from 1.3540.
However, foreign exchange markets currently appear less reactive to shifts in UK interest rate expectations. As such, the impact on Sterling is expected to remain limited. Broader international trends, particularly those stemming from US policy and global trade dynamics, are likely to continue setting the tone.
Cautious markets steady ahead of US-China trade talks
Market participants showed little appetite for bold moves as they waited for further developments in trade discussions between the United States and China, which are due to resume in London later today.
In the United States, the only notable release on the economic calendar is the NFIB Small Business Optimism Index for May. With no major data due, financial markets remained largely quiet as the week got underway. Wall Street’s leading indices finished Monday with only slight gains, while the US Dollar Index edged lower.
By Tuesday morning in Europe, the US Dollar Index was trading just above the 99.00 mark, showing a modest uptick. Futures tied to key US equity benchmarks showed minimal movement, suggesting a lack of fresh drivers for risk sentiment.
The euro-dollar pair, after posting a slight increase on Monday, remained confined to a narrow range near 1.1400 in European morning trading on Thursday.
Elsewhere, China’s Vice President Han Zheng expressed a willingness to strengthen ties with the European Union, highlighting the Chinese government's openness to broader cooperation and deeper engagement with the EU.
Later in the day, attention will turn to the release of the Sentix Investor Confidence Index for June, which is the main item on Europe’s economic schedule.
