The British Sterling saw a sharp rally this morning as the UK labor market report was published. Unemployment rate improved to 5.7% against estimates of 5.8% while the claimant count change, which is the number of people claiming unemployment benefits continued to beat estimates falling -38.6k vs. -25.2k. The average earnings index, 3m/y improved to 2.1%, beating estimates of 1.7%, while the previous month’s data was revised higher to 1.8%.
The Bank of England was quick to react to the vastly superior jobs report noting that it recognizes a robust consumption growth while noting that the unemployment rate has improved faster than expected. The jobless rate of 5.7% was the lowest in the past six years
Around the same time the BoE also released its monetary policy minutes, where it noted that the rate hikes are likely to be gradual and that investors should brace for potential political turmoil in the run up to the May general elections. In regards to the voting members, the BoE monetary policy committee remained unanimous in keeping current monetary policy steady
The British Sterling, which opened the day near session lows of 1.53418 managed to reverse its losses from yesterday, rallying as high as 1.542 at the time of writing. The GBPJPY pair which was earlier seen to be weaker also managed to trim its losses brought on by the BoJ’s inaction to reverse from intraday lows of 182.6 to trade near 183.7 handle. GBPAUD which had previously been on a bullish run only to lose steam the past few days also saw a strong turn around reversing from lows of 1.96185 to trade near 1.975 handle. The pair looks steady to reach previous highs near 2.0 as the Aussie looks fundamentally weaker in comparison to the British Sterling.
In regards to the Cable, the current short-term bullish rally might start to fizzle out near the 1.55/1.56 handle which could potentially tip the scales to the downside back to 1.52 level. The main risks to all USD cross currencies come from tonight’s FOMC minutes meeting, which if shown to be bullish could potentially weaken the currency pairs across the board. Furthermore, as far as the British Sterling is concerned, ahead of the May general elections, the Cable is likely to turn weaker until a new government is elected.
We also expect to see the BoE push forth in its hawkish view of the economy, hinting at rate hikes possibly after the political dust settles which should turn the British Sterling potentially bullish against weaker currencies.
With inflation being the sore point for the BoE, the recent turnaround in Crude Oil prices should potentially help the UK economy’s inflation to stabilize, if not at the BoE’s 2% target rate, then at least better than current inflation levels.
