In Tuesday’s European session, the Pound Sterling (GBP) faced a notable decline, breaching the round-level support of 1.2800. This drop follows the release of discouraging Employment data by the United Kingdom Office for National Statistics (ONS), indicating challenges in the labor market due to higher interest rates from the Bank of England (BoE) and an escalating cost-of-living crisis.
According to the UK ONS, the Unemployment Rate surged to 3.9%, with employers laying off 21,000 workers. Additionally, Average Earnings exhibited slower growth in the three months ending January. These figures highlight growing uncertainty about the economic outlook, potentially prompting BoE policymakers to consider earlier interest rate reductions.
Investors are advised to brace for heightened volatility as the United States Bureau of Labor Statistics (BLS) prepares to release the Consumer Price Index (CPI) data for February. This inflation data is anticipated to offer fresh insights into the US interest rate landscape.
Pound Sterling Reacts to Cooling UK Labor Market Conditions
The Pound Sterling experienced a sharp decline following the release of softer-than-expected Employment data for the three months ending in January by the UK ONS. The Unemployment Rate rose to 3.9%, surpassing expectations and the previous reading of 3.8%. During this period, employers let go of 21,000 workers, contrasting with the hiring of 72,000 job-seekers in the preceding three months ending in December. In February, the Claimant Count Change moderately grew by 16.8K, falling short of expectations at 20.3K, while individuals claiming jobless benefits in January were revised downward to 3.1K from the initially reported 14.1K.
Average Earnings Excluding Bonuses recorded a growth of 6.1%, slightly below expectations and the previous reading of 6.2%. Earnings including bonuses demonstrated a slower pace, increasing by 5.6%, against the consensus of 5.7% and the prior reading of 5.8%.
The decline in Average Earnings for the three months ending January suggests a swifter contraction than anticipated by market participants, potentially providing room for Bank of England policymakers to contemplate rate cuts sooner than expected.
However, BoE policymaker Catherine Mann, who voted for a rate hike in the February monetary policy meeting, cautioned on Monday that there is still a considerable journey to achieve sustainable inflation reduction to the desired target of 2%.
As the week progresses, the Pound Sterling will remain in focus with upcoming releases of UK monthly Gross Domestic Product (GDP) and January’s factory data on Wednesday. Simultaneously, the GBP/USD pair is poised for potential volatility, with attention shifting to the United States inflation data, slated for release at 12:30 GMT. Forecasts indicate a rise in monthly headline inflation and a deceleration in core inflation. Analysts expect headline CPI to remain steady at 3.1%, while core inflation is anticipated to ease to 3.7% from 3.9% in January.
