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Pound Sterling Brushes Aside UK Earnings and Employment Data Shock

Employment data to drive the pound sterling today

The British pound retains its April strength despite UK employment and wage earnings falling well below analyst expectations.

Employment, and particularly wage data, are a big deal for sterling in that the Bank of England tends to place a significant emphasis on the two data points when arriving at policy decisions.

To be fair, inflation is their number one economic data point of concern, but higher wages feed into higher inflation.

Hence, the Average Earnings Index + Bonus (Feb) number is key.

Data from the Office for National Statistics shows the number came in at 1.8%, previously it read at 2.1% while economists were forecasting a much stronger reading of 2.3%.

“The fact that wage pressures remain relatively subdued suggests that some slack remains in the labour market,” say Lloyds Bank Commercial in a briefing to clients. In short, the Bank of England will feel justified in pursuing a GBP-negative policy of extending record-low interest rates.

On the employment side, the Claimant Count was forecast to read at -11.3K, less than the previous month’s -18K.

Instead, it actually rose by 6.7K, this represents the first rise in unemployment since 2015.

"The combination of strengthening economic headwinds, and the political uncertainty triggered by the Brexit referendum, is having a dramatic cooling effect on employers’ appetite to hire," says Mariano Mamertino, economist at the global job site, Indeed.

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Indeed's March Indeed Employment Trends index, based on a sample of hundreds of thousands of live UK job postings in 13 major employment sectors, shows recruitment activity slowed dramatically within days of the referendum being called.

"As yet it’s hard to know whether this dramatic reduction in job postings is a blip, or the beginning of a deeper trend," says Mamertino.

We remain awake to the fact that if the slowdown in job hires is related to the EU referendum mid-year employment data could perform a positive about-turn following the vote, assuming it is one to stay within the EU. 

The British pound fell 30 pips against the US dollar following the release of the data and is quoted at 1.4370.

Note though that the pair is still well within reach of the previous dat's highs above 1.44.

While the employment numbers will be important it must be remembered that the dominant theme driving GBP against the euro and US dollar at present is overall risk sentiment, therefore the impact of the data will likely be short-lived.

Mid-week trade in sterling is mixed with declines coming against commodity complex but earlier losses against the dollar and euro being reversed. 

This is understandable as the GBP/EUR and GBP/USD continue to track moves in Germany’s DAX.

There is no clear linkage between the two, rather this is a reflection of how markets approach the products from a risk perspective.

The dynamics concerning global risk flows place a similar risk weighting on these two pairs as is given to the DAX.

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