Pound Sterling gains nominal ground against the US Dollar following the release of mixed UK job market data.
The Pound Sterling (GBP) is trading marginally higher against its main counterparts in Tuesday’s London session, following the release of the mixed United Kingdom (UK) Employment report for the three months ending in July.
An projected decrease in UK wage growth would compel the BoE to cut interest rates this month.
The British pound strengthened as the UK Office for National Statistics (ONS) reported strong labor demand, while pay growth slowed largely in line with predictions According to the organization, the ILO Unemployment Rate fell to 4.1% from 4.2% in the previous release, as expected. UK firms employed 265K new employees, much more than the previous report of 97K. Historically, strong job growth has boosted hawkish Bank of England (BoE) bets. Still, it is less likely to occur in this scenario because Average Earnings data, a measure of wage growth that drives inflation in the service sector, decelerated as forecast.
Policymakers at the Bank of England have continued to be concerned about sustained inflation as a result of strong service sector inflation. A slowdown in wage growth momentum would alleviate them and fuel market speculation about BoE interest rate cuts this month.
Average Earnings Excluding Bonuses came in at 5.1%, as expected, a decrease from the previous announcement of 5.4%. Wage growth, including bonuses, decelerate quicker than expected to 4%, down from predictions of 4.1% and a previous reading of 4.6%, which had been revise upward from 4.5%.
Daily Market movers: Pound Sterling climbs modestly against the US dollar.
In Tuesday’s European session, the pound sterling edged higher but remained below the critical barrier level of 1.3100 against the US dollar (USD). The Pound pair rises modestly, but the near-term picture remains murky as the US Dollar maintains its Monday gains.
The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, trading near 101.60, with investors looking ahead to the August Consumer Price Index (CPI) data, which will be released on Wednesday.
Though the Fed is nearly certain to start. Inflation statistics may affect market speculation about the expected extent of the interest rate drop this month. According to the CME FedWatch tool, 29% of respondents believe the Fed will lower interest rates by 50 basis points (bps) to 4.75%-5.00% in September, while the remaining respondents favor a 25-bps cut.
The possibility of a major interest rate cut by the Fed has decreased after the release of US Nonfarm Payrolls (NFP) data for August on Friday, which revealed that the slowdown in job growth was not as severe as it appeared in the July data.
Investors are waiting for US inflation statistics to provide new advice on the Fed’s interest rate lowering path.
Meanwhile, economists expect the annual headline US CPI to fall to 2.6%, its lowest level since March 2021, from 2.9% in July. Core inflation excluding volatile food and energy prices estimated to have gradually increased by 3.2%. Both monthly headline and core inflation are expected to rise 0.2%.
Softer-than-expected US inflation statistics would lead to market expectations that the Fed would begin lowering policy quickly. On the contrary, sticky or steamy CPI statistics will weaken them.
