The British Pound rose against the Euro and Dollar following the release of UK labour market statistics that revealed a strong jump in wages and a larger than expected fall in unemployment.
The UK added 83K jobs in the three months to March said the ONS, far more than the 5K the market was looking for.
The unemployment rate unexpectedly fell to 3.7% from 3.8%, which is the lowest level in 50 years.
"Despite a slowdown in growth this March, the UK's labour market remains red hot with record vacancies and job-to-job moves," says Matthew Percival, CBI Director for People and Skills.
Average Earnings, with bonuses included, surged 7.0% in March, far higher than the 5.4% the market was looking for.
Above: Payrolled employees, seasonally adjusted, UK, July 2014 to April 2022. "The number of employees declined between February and November 2020, but is now above the pre-coronavirus level" - ONS.
The data was stronger than the market was expecting and will maintain pressure on the Bank of England to continue raising interest rates.
This is because a 'tight' labour market - one where unemployment is low but demand for workers strong - of the kind the UK is witnessing will continue to put upside pressure on wages, which in turn generates further inflation.
The Bank simply cannot afford to sit back and do nothing in the face of this kind of data.
"Our view that the labour market will remain tight and wage growth will accelerate further even as the economy flatlines or contracts in the next few quarters explains why we think the Bank of England will have to raise interest rates from 1.00% to 3.00% to contain this source of domestic inflationary pressure," says Paul Dales, Chief UK Economist at Capital Economics.
The Pound responded accordingly: the Pound to Euro exchange rate jumped in the wake of the data release, going to 1.1875, the Pound to Dollar exchange rate rose three quarters of a percent to trade at 1.2420. (Set your FX rate alert here).
Above: GBP/EUR at 5 minute intervals.
The data risks making the Bank of England's expectations for the economic outlook appear too pessimistic. Governor Andrew Bailey told members of Parliament's Treasury Select Committee on Monday the Bank continues to expect unemployment to rise in coming months as the effects of a slowing economy become more keenly felt.
The assumption is that inflation - which is expected by the Bank to go as high as 10% - will eventually stall economic growth as consumers are forced to become more conservative.
This is anticipated to lead to higher unemployment and the Bank has therefore said only limited interest rate rises were needed from here.
This is at odds with the market which still expects about 100 further basis points of hikes in 2022 alone.
But, given today's labour market data, it could be the Bank that has to move towards the market's expectations.
And this is ultimately supportive of Sterling.
"Sterling is benefiting from surprisingly positive data released this Tuesday morning, with unemployment and wage figures both surpassing expectations, painting a more positive picture for the British economy than had been expected. Against such background, expectations have risen for the Bank of England to step-up the pace of monetary policy tightening; with inflation data being released tomorrow predicted to surpass 9%, officials at the BoE should have little choice but to continue to rise interest rates, creating scope for further pound gains," says Ricardo Evangelista, Senior Analyst at ActivTrades.
Above: Number of vacancies in the UK, seasonally adjusted, February to April 2003 to February to April 2022. "Vacancies rose to a record 1,295,000 in February to April 2022" - ONS.
The ONS said rhe number of job vacancies in February to April 2022 rose to a new record of 1,295,000; an increase of 33,700 from the previous quarter and an increase of 499,300 from the pre-coronavirus pandemic level in January to March 2020.
In January to March 2022 the ratio of unemployed people to every vacancy remained at 1.0 and for the first time the number of vacancies was larger than the number of people unemployed, said the ONS.
This suggests the labour market will remain strong for some time yet, even in the face of rising inflation.
Much of the labour market's 'tightness' is however a symptom of a striking workforce due to a number of factors, including fewer EU nationals coming to the UK for work, long term sickness rates following Covid and older workers bringing forward retirement plans post-pandemic.
But surging inflation will prompt more people to look for work again as income levels are reassess.
Falling stock markets and falling crypto currency values will also prompt more people back into the workforce.
"Reassuringly, however, the number of people who are technically inactive but who would like a job increased by 32K in Q1, suggesting that domestic labour supply could recover in Q2," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.
This could ease pressure on the Bank of England to raise interest rates as much as markets are expecting (currently a further 100 basis points of hikes are expected).