February 18, 2025 – Written by Ben Hughes
STORY LINK Pound Sterling Jumps against Euro and Dollar on “Stable” UK Jobs Market
The Pound rallied against the Euro and Dollar on Tuesday after stronger-than-expected UK wage growth triggered fresh doubts about whether the Bank of England would be able to cut interest rates more aggressively.
The Pound to Euro exchange rate (GBP/EUR) hit 6-week highs just above 1.2060. The next resistance area will be around 1.2100.
Markets will also continue to monitor geo-political developments as European countries scramble to respond to US-Russia talks surrounding Ukraine.
The latest UK labour-market data recorded that the unemployment rate was unchanged at 4.4% in the three months to December compared with consensus forecasts of an increase to 3-year highs of 4.5%.
The number of people on payrolls was estimated to have increased 2by 2,000 for January after a revised 14,000 decline for December.
There was a further decline in vacancies in the month, although the rate of decline slowed.
ONS director of economic statistics Liz McKeown commented, “The number of employees on payroll was broadly unchanged in the last three months of the year, continuing a medium-term trend of slowing growth.”
Headline annual earnings growth increased to 6.0% in the year to December from a revised 5.5% previously, slightly above consensus forecasts of 5.9% and the strongest reading since November 2023.
Underlying earnings met expectations with an increase to 5.9% from 5.6% and the strongest reading since April 2024.
Private-sector wages increased 6.2% over the year.
The Bank of England will be monitoring trends in wage growth closely.
Pepperstone senior research strategist Michael Brown commented, “Such a pace of earnings growth is incompatible with a sustainable return to the Bank of England’s 2% inflation target over the medium term.”
According to MUFG; “one stronger print does not change the general story of softer labour market data but it will help to further dampen expectations for more active BoE easing in the near-term alongside still uncomfortably strong wage growth.”
Yael Selfin, chief economist at KPMG UK still considers that the labour market overall has deteriorated; “Demand for staff has declined, with vacancies remaining at close to pre-Covid levels. Additionally, there has been a marked improvement in the availability of workers.”
ING expects a slowdown in wages growth to 4.5% by late 2025.
According to the bank, “If we’re right – both about that and a more material fall in services inflation through the spring – then this should give the Bank more confidence to keep cutting rates. We think the path of least resistance is for four rate cuts in total this year, or once per quarter.”
As far as the Euro-Zone is concerned, politics are likely to dominate in the short term with the on-going Ukraine situation as well as domestic elections and US tariff concerns.
ING commented; “The focus will also be on the run-up to the weekend elections in Germany, where a very tight result and a delay in forming a coalition would likely be seen as a euro negative given the lack of leadership in Europe currently.”
The bank added, “The eurozone’s structural unpreparedness to face the economic consequences of Trump’s tariffs continues to form the basis of our bearish EUR view.”
Pound Sterling Performance
The British Pound Sterling’s performance against its major peers showed modest gains and slight declines in the latest trading session.
The Pound strengthened against the Euro (GBP/EUR) by 0.17% to trade at 1.20572 and also edged higher versus the New Zealand Dollar (GBP/NZD), posting a 0.3% rise to 2.20874 – its most significant daily gain among the listed currencies.
Other notable advances included a 0.18% uptick against the Norwegian Krone (GBP/NOK) to 14.04423, a 0.24% climb on the Japanese Yen (GBP/JPY) to 191.58359, a 0.11% increase on the Swedish Krona (GBP/SEK) to 13.51378, and a 0.13% improvement against the Israeli Sheqel (GBP/ILS) to 4.49822.
However, the Pound Sterling exchange rates weakened against several other counterparts.
It slipped by 0.07% versus the US Dollar (GBP/USD), moving down to 1.26119, and lost 0.09% against the Swiss Franc (GBP/CHF), settling at 1.1358. Slight declines were also observed against the Canadian Dollar (GBP/CAD), the Australian Dollar (GBP/AUD), and the Singapore Dollar (GBP/SGD), dropping by 0.04%, 0.13%, and 0.02%, respectively.
The Pound also eased by 0.05% against the South African Rand (GBP/ZAR), coming in at 23.24077.
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TAGS: Pound Sterling Forecasts
