Pound Climbs as Jobs Data, BOE Survey Brighten Economic Outlook

  • U.K. ILO unemployment rate falls to lowest since 2005
  • BOE Agents’ survey shows firms maintain ‘business as usual’

Pound's Plunge Sparks Surge in U.K. Consumer Stocks

The pound climbed from a one-week low as a report showed the U.K. unemployment rate fell below 5 percent for the first time since 2005.

Sterling was further boosted by a Bank of England survey which showed that despite an increase in business uncertainty after the June 23 referendum where the U.K. voted to leave the European Union, firms sought to maintain “business as usual.”

The British currency gained versus all of its 16 major peers as data showed the U.K. jobless rate, as measured by International Labour Organisation standards, dropped to 4.9 percent in the three months through May. The median forecast in a Bloomberg survey of economists was for an unchanged reading of 5 percent. Separate wage data showed average weekly earnings unexpectedly fell.

“It’s a double push really for the pound,” said Neil Jones, London-based head of hedge-fund sales at Mizuho Bank Ltd. “We have got insight into the thinking of businesses and it looks like the hiring plans” are not expected to change “for the moment, so we can probably maintain some healthy levels of employment.”

The pound rose 0.6 percent to $1.3183 as of 4:03 p.m. London time, after falling earlier to $1.3065, the lowest since July 12. Sterling strengthened 0.6 percent to 83.54 pence per euro.

BOE Survey

The BOE’s Agents’ summary of business conditions showed that while the Brexit vote caught most U.K. firms by surprise, they did not expect to alter their investments and hiring plans in the near term. While the outlook for the U.K. economy remained cloudy, the survey showed the central bank was yet to see evidence of a sharp slowdown.

“The reference to most firms not expecting the near-term impact to alter their investment or hiring plans” is significant, Mizuho’s Jones said. “This is the coal face and engine room of an economy. It matters a lot to us what they do.”

The vote to leave the EU helped push the pound to a 31-year low versus the dollar earlier in July. Sterling is the worst performer among major currencies this year.

Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, cautioned that the market reaction to the U.K. labor data “may be a little overdone because these are data from May. So they do not include any Brexit vote sets yet.”

Merkel-May Meeting

Traders’ focus will shift to the meeting between U.K.’s Prime Minister Theresa May and German Chancellor Angela Merkel, according to Eimear Daly, a Group-of-10 currency strategist at Standard Chartered Plc in London. “Any kind of signs you would be able to have something in place before we officially exit the EU will be sterling-supportive,” Daly said.

Moves in the pound may also be dictated by post-Brexit data later this week.

Surveys tracking output among U.K. services and manufacturing industries, as measured by purchasing managers, which are due on July 22, “will be very, very important as this will be one of the first data points which will reflect the post-Brexit mood,” according to Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV. He remains bearish on the pound and predicts it will slide to $1.23 in the next three months.

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