Sterling rockets higher as rate hike bets climb on UK employment data

Yesterday’s data revealed a surprising and sizeable climb in the UK employment rate, coupled with an equally unexpected acceleration in the pace of wage growth, towards the end of last year. The pound climbed sharply against major peers as markets priced in higher odds of monetary tightening.

The pound is on mixed form this morning. GBP/EUR may be flat at €1.1479, but GBP/USD is up 0.3% to US$1.4253. GBP/AUD has fallen -0.2% to AU1.7627, while GBP/NZD is down -0.2% as well to NZ$1.9337. GBP/CAD is flat at C$1.7556.

Read on to find out just how well the pound performed versus the euro and US dollar after the latest data…

What’s been happening?

Yesterday saw pound Sterling tearing higher versus the euro and US dollar after strong employment data from the UK raised market hopes that the Bank of England (BoE) would hike interest rates at least once during the course of 2018.

GBP/EUR climbed to an eight-month high, while GBP/USD was able to gain over 1.5% to reach a new post-referendum best after data revealed a surprise increase in employment during the three months to November of 102,000 when economists had predicted a drop of -10,000.

A surprise uptick in the rate of pay growth from 2.3% to 2.4% further boosted market appetite for the pound, with several analysts stating that the day’s strong figures suggested the Monetary Policy Committee (MPC) will need to hike rates at least once this year. The recent slowdown in inflation data had raised fears that policymakers would opt to leave borrowing costs frozen until 2019.

A run of largely above-forecast Eurozone PMIs failed to provide the support necessary for the euro to resist the pound’s advance.

All-in-all the data pointed to quarter-on-quarter GDP growth of 1% during the first three months of 2018 and underlined the robust nature of the Eurozone economy.

Meanwhile, GBP/USD gains were heightened by adverse market reaction to a briefing from two of President Donald Trump’s senior officials at the World Economic Forum (WEF) event in Davos. Commerce Secretary Wilbur Ross largely defended the protectionist stance taken by the US towards trade since Trump’s election.

What's coming up?

Today’s Confederation of British Industry (CBI) sales data for January could further improve the mood towards the Pound if the results are positive, although forecasts are currently for a weakening in the indices, so Sterling may struggle later in the day.

The European Central Bank (ECB) announces the decisions of its latest monetary policy meeting today, followed by a press conference with President Mario Draghi. Markets will be keen to see if the continued trend of strong economic data from the currency bloc is causing policymakers to rethink their cautious outlook.

There’s plenty of US data scheduled for release today, with the December advance goods trade balance being the most impactful.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.