Home Daily Commentaries UK employment causes a dilemma for the Bank of England

UK employment causes a dilemma for the Bank of England

Tuesday 17 January, 2023

Daily Currency Update

Wage data in the UK came out at a record high this morning and unemployment levels are at an all-time low, which now puts the Bank of England in a bit of a dilemma. There were expectations in the market over the past few weeks that they may slow down the rate of hiking rates to give the UK economy room to breathe, but this latest data suggests that the Bank may have to look to raise more aggressively. The market is now forecasting a 50-basis point rate rise in their February meeting, followed by a 25-basis point hike after that. Despite all the challenges facing the UK economy, the jobs market is still holding up well, though is a lagging indicator of economic health.  

Key Movers

The US Dollar is building on the previous recovery this Tuesday, as risk sentiment remains tentative following the release of China’s growth numbers. The Chinese data was relatively weak, and concerns remain about the impact of rising covid-19 cases and what could happen to the global supply chain if China decides to implement any further lockdowns. The Euro remains a firm favourite, as Thursday sees ECB president Lagarde speaking. The central bank has been hawkish of late, with the market speculating that it may get on the front foot in terms of interest rate hikes compared to the Bank of England and Federal Reserve. There has been optimism since the turn of the year that the European economy may be in a better condition than thought last year and thus, the central bank has room to increase rates aggressively and control inflation.

Expected Ranges

  • GBP/USD: 1.2165 - 1.2245 ▲
  • GBP/EUR: 1.1220 - 1.1305 ▼
  • GBP/AUD: 1.7430 - 1.7655 ▲
  • EUR/USD: 1.0780 - -0.9135 ▲