Pound off two-week highs after UK jobs data leaves rate bets intact

Sterling eased from a two-week high against the dollar on Tuesday as UK jobs data came in largely in line with forecasts, keeping expectations for future rate rises from the Bank of England intact.

The pound hit a two-week high against the greenback on Monday on hawkish comments from BoE governor Andrew Bailey, who stressed the need to prevent inflation, and fellow policymaker Michael Saunders, who said households must brace for “significantly earlier” interest rate rises.

The BoE, which is gearing up to become the first major central bank to raise rates since the coronavirus crisis struck, is watching to see how many people became unemployed after the end of the country’s pandemic furlough programme.

Data showed British employers expanded their payrolls to a record high in September, while the unemployment rate edged down to 4.5% in the three months to August, in line with economists’ forecasts in a Reuters poll.

Money market pricing shows around an 8 basis point rate hike from the BoE priced in as early as the Bank’s November meeting.

Sterling traded a touch lower on the day, down 0.06% against the dollar at $1.3586 and below Monday’s peak of $1.3674 .

Against the euro, it was also slightly lower, down 0.04% at 85.05 pence.

“There is nothing in this data to push back against the very early pricing of the BoE tightening cycle,” said ING strategists Chris Turner and Francesco Pesole in a note to clients.

They added that “left-field risk” for the pound on Tuesday could come from a speech from Britain’s chief Brexit negotiator Lord Frost in Portugal.

“Here he is expected to push ahead with calls that the ECJ (European Court of Justice) be removed from oversight of the Northern Ireland trade deal,” they said.

“This is a red line for Brussels and more formal push back from the EU (European Union) may come tomorrow when the EU presents their proposed revisions to the Northern Ireland protocol,” the strategists said.

Positioning data from the CFTC on Friday showed the biggest weekly trimming of speculative positions in the pound in two years, with a shift from neutral to short positions on the currency. [CTFC/] [IMM/FX]

Respondents to an October market sentiment survey from Deutsche Bank (DE:DBKGn) said they expected the BoE to make a policy mistake on the hawkish side.