GBP was seen trading higher against the Euro, Dollar and a host of other major currencies on Tuesday, Jan. 21 after the release of official labour market figures that showed both a jump in employment and wages in December.
The strong numbers come in defiance of a recent run of soft economic statistics, and will give policy makers at the Bank of England reason to keep interest rates unchanged and cast into doubt growing market expectations for a January 30 interest rate cut.
The ONS employment in the UK expanded by 208K in the three months to December, well above the 110K expected by the market. The claimant count in December did see an addition of 14.9K out-of-work benefit claimants, but this was well below the more pessimistic 22.6K the market was expecting. The UK employment rate was estimated at a record high of 76.3%, 0.6 percentage points higher than a year earlier and 0.5 percentage points up on the previous quarter.
Based on the employment statistics out today, it would be hard to argue that this is an economy that requires an interest rate cut. Members of the Bank of England’s Monetary Policy Committee have signalled through a series of speeches in January that a rate cut might be warranted in the first half of 2020 based on the observation the economy is slowing. An interest rate cut would, in theory, boost the economy as the cost of borrowing money falls. A side effect of such a cut is however often a softening in the currency.
The implied probability of a 25bps interest rate cut on January 30 fell to 64%, from a little over 70% last week. Should market expectations for such an outcome be pared back further, it stands that the Pound will recover more lost ground.
GBPEUR rate is quoted at 1.1753 at the time of writing, having started the day at 1.1719 GBPUSD exchange rate at 1.3050, having started the day at 1.30.