Jobs data steadies the ship for GBP ahead of interest rate decisions

Daily Currency Update

Sterling starts the week broadly in line with expectations, holding on to recent gains as the UK faces a data-heavy few days. A steady, if uninspiring, performance has set the tone so far. Unemployment held at 4.7% in July, while PAYE data showed a modest loss of 8,000 jobs in August, pointing to a slower pace of decline and signs the labour market may be stabilising despite consistent monthly payroll drops over the past year.

Job vacancies in the three months to August rose to 728,000, bouncing from the lowest level since early 2021 in the previous release. Meanwhile, wages grew 4.7% (ex-bonuses 4.8%), exactly in line with forecasts. Pay growth at these levels remains too high for the Bank of England to feel comfortable beginning a rate-cutting cycle, reinforcing expectations for a hold at Thursday’s meeting.

The steady unemployment rate will also calm the 'doves' on the Bank of England's rate-setting committee who might have been inclined to vote for further rate cuts on account of a softening labour market. Given this, UK short-term bond yields are likely to remain supported at superior levels to those in peer countries, which lends the pound support.