UK employment data limits the downside for the pound
Wednesday 15 February, 2023
Daily Currency UpdateSterling gained ground early in yesterday's trading after UK employment numbers topped estimates, with claimant count change coming in better than expected. However, this morning's UK CPI data, which came in marginally worse than expected at 10.1% has bought the Sterling back to earth. GBPUSD currently trades below 1.21, with the headline inflation reading marking a third monthly decline after rising to the 41-year high in October. Core CPI, which excludes volatile food and energy items, slid to 5.8% on a yearly basis compared to the 6.2% expected and 6.3% in previous readings. Bank of England’s Officials have recently highlighted the data dependency for further rate hikes, and a natural decline in inflation coupled with mixed data could make the central bank rethink any need for further rate hikes for now. Analysts at Nomura stated that ''pay growth over recent months in the UK has still been strong enough, in their view, to justify another 25bp hike by the Bank of England at its March meeting", however differences in opinion amongst economists as to how fast inflation will fall will keep uncertainty alive regarding the outlook of UK interest rates.
Key MoversYesterday’s CPI releases in the US beat estimates on both core and headline prints reflecting the sticky inflationary pressures in the US. Inflation showed that the CPI for January rose by 6.4% YoY, above estimates of 6.2%, while core CPI jumped to 5.6% YoY, against data estimated at 5.5%. This has left the market pondering whether the peak of interest rate hikes by the Fed could now be above 5%. Economists at UOB Group say they expect EURUSD to trade between 1.0655 and 1.0815 in the next few weeks, adding “EUR popped briefly above their ‘strong resistance level of 1.0800. The breach of the ‘strong resistance’ level indicates that the EUR weakness from early last week has come to an end. The current price movements are likely the early stages of a consolidation phase and EUR is expected to trade between 1.0655 and 1.0815.”
- GBP/USD: 1.2055 - 1.2140 ▼
- GBP/EUR: 1.1210 - 1.1290 ▼
- GBP/AUD: 1.7410 - 1.7665 ▲
- EUR/USD: 1.0720 - 1.0815 ▲