GBP/USD – Pound Edges Higher Ahead of UK Job Data

12/11/2023

2 minutes read

2023.12.11 09:50

MarketPulse

UK to release employment report on Tuesday
US nonfarm employment payrolls beats forecast and rise to 199,000

The British pound is showing little movement at the start of the week. In Monday’s European session, is trading at 1.2576, up 0.22%.

It’s a busy week for UK releases which could translate into volatility from the British pound. The UK releases employment data on Tuesday, GDP on Wednesday, followed by the Bank of England rate decision on Thursday.

BoE Eyes Employment Report

The UK employment report will be closely watched by the BoE, which is expected to hold the cash rate at 5.25% for a third straight time. The UK labour market has remained strong despite the BoE’s aggressive tightening and high wage growth continues to drive inflation. The unemployment rate is expected to tick higher from 4.2% to 4.3% while wages including bonuses are expected to ease to 7.7%, down from 7.9%.

BoE Governor Bailey had a hawkish message for the markets last week, saying that interest rates could remain at current levels for “an extended period” in order to bring inflation back down to the 2% target. Inflation has been falling sharply, but the current clip of 4.9% remains much higher than the target and the BoE doesn’t want to encourage talk of a rate hike, which could ease financial conditions and push inflation higher. The markets, however, have priced in rate cuts in mid-2024.

US Nonfarm Payrolls Dampens Rate-Cut Expectations

Friday’s US nonfarm payrolls came in at 199 thousand in November, above the market consensus of 180,000 and higher than the October gain of 150,000. Unemployment dropped from 3.9% to 3.7% and average hourly earnings rose to 0.4% m/m, up from 0.2% in October and above the market consensus of 0.3%. The strong data points to a resilient labour market despite signs that the economy is cooling down, and has reduced fears of recession.

The markets are still expecting four or five rate cuts in 2024, pointing to a deep disconnect with the Fed, which is insisting that hikes remain on the table. The strong nonfarm payroll report is a reminder to the markets that the US labour market remains strong, even if there are clear signs that the economy is cooling down. Tuesday’s inflation report will be closely watched, as a stronger-than-expected reading would likely force the markets to temper expectations about rate hikes in 2024.

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