Pound Rises, Bonds Fall on Better-Than-Forecast U.K. Labor Data

  • Sterling had earlier fallen to one-month low versus the dollar
  • U.K. unemployement rate drops to 4.4%, lowest since 1975

U.K. Unemployment Falls to 4.4%, Wages Top Estimates

The pound advanced and U.K. government bonds fell after the nation’s unemployment rate dropped to the lowest since 1975 and wages rose more than forecast.

Sterling snapped a two-day decline against the dollar and benchmark 10-year gilts fell for a third day after the jobless rate dropped to 4.4 percent in the second quarter from 4.5 percent in the three months through May. Wage growth excluding bonuses accelerated to 2.1 percent, compared with the median forecast for a 2 percent increase.

  • GBP/USD up 0.2% at 1.2890 as of 10:41 a.m. London time, having earlier fallen to 1.2842, its lowest since July 12
    • Resistance at 1.2916, Aug. 15 mid open/close price; support at 1.2848, 61.8% Fibonacci of June-Aug. rise
  • EUR/GBP falls 0.2% to 0.9100, first drop in five days
  • Yield on 10-year gilts +4bps to 1.12%
  • “The currency is likely to remain firm this morning,” Neil Jones, head of hedge fund sales at Mizuho, said in emailed comments. “However, I suggest the upside for sterling will prove limited”
  • Recent U.K. data have underwhelmed and cut down prospects of a rate increase by the Bank of England
    • The implied probability of a 25bps rate increase by year-end was 26%, according to MPC-dated SONIA, sliding from 50% before the BOE’s policy announcement on Aug. 3
  • The climb in sterling could prove “temporary,” according to Viraj Patel, a currency strategist at ING Groep NV
    • “Any knock-on effects for BOE policy are minimal” from the labor data, and “short-term U.K.-U.S. rate differentials will remain the key driver” for cable
    • ING’s view of a recovery in U.S. data “should weigh on GBP/USD in the near term toward 1.26-1.27”
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