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Pound to Euro Nears 1.1720 After Mixed UK Jobs Data

April 16, 2024 - Written by John Cameron


There was choppy Pound trading after Tuesday’s UK data, but the Pound to Euro exchange rate (GBP/EUR) secured a slight net advance to just above 1.1720.

UK labour-market data was mixed with markets potentially waiting for Wednesday’s inflation data before taking a decisive view on the outlook for Bank of England (BoE) policy.

Overall risk conditions will be important after a slide in European equities on Tuesday.

Weaker risk conditions will tend to hamper both the Euro and Pound, although the Pound would tend to be hurt more.

The headline UK unemployment rate increased to 4.2% in the three months to February from 3.9% previously and above consensus forecasts of 4.0%.

Payrolls were estimated to have declined 67,000 for March after an 18,000 decline for February.

Overall employment declined and the inactivity rate also increased in the latest quarter.

The long-term sickness rate increased to a record high.

Vacancies declined 13,000 in the latest three months, the 21st successive decline.

ONS director of economic statistics Liz McKeown commented that there are tentative signs that the jobs market is beginning to cool.

Nevertheless, she added; “However, we would recommend caution when looking at the size of the fall in headline employment, as previously highlighted lower sample sizes mean there is greater volatility in quarterly changes than was the case.”

According to PwC UK economist Jake Finney; “The latest data suggests the UK labour market continues to cool, albeit at a gradual pace considering the strain the economy has been under over the past few years.”

As far as wages are concerned, headline average earnings held at 5.6% compared with expectations of a slight decline to 5.5% while underlying earnings edged lower to 6.0% from 6.1%.

PwC’s Finney added; “High pay growth remains a key barrier to base rate cuts as the Bank of England expects it is contributing to inflation persistence.”

According to Yael Selfin, chief economist at KPMG UK; “The slight easing in regular pay growth will bring some comfort for the Bank of England which has relied on the pay data as a key gauge of domestic inflationary pressure.”

She added; “Moreover, the rise in unemployment rate paints a picture of a less tight labour market. The exact timing of the first rate cut will be a hot debate for the MPC in the coming months.”

In headline terms, real wages increased 1.6% over the year with a 1.9% underlying increase. This was the strongest increase since the third quarter of 2021.

ING noted mixed data but added that the Bank of England will be concerned over the monthly jump in private-sector wages growth. It added; “While some may be focusing on the decline in employment, we think the 12% annualised month-on-month reading in private sector pay is far more consequential for the Bank of England. This is not the kind of benign wage data the BoE needs to see before it is prepared to cut rates.”

Rob Wood, chief UK economist at Pantheon Macroeconomics expects a June BoE rate cut and added; “There is solid evidence the labour market slowed markedly in March. Rate setters will take note. Wages lag labour market slack, so these figures will likely embolden the Monetary Policy Committee to begin cutting interest rates this summer.”

According to ING; “for today, from a macro perspective, we take issue with sterling weakness on the back of today's data and could easily see EUR/GBP returning to the 0.8530 area and maybe lower, once the UK rates markets have a chance to sink their teeth into the high private sector wage data.”

This would mean a GBP/EUR advance to 1.1725 or higher.
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