UK employment data limits the downside for the pound

Daily Currency Update

Sterling gained ground early in yesterday's trading after UK employment numbers topped estimates, with claimant count change coming in better than expected. However, this morning's UK CPI data, which came in marginally worse than expected at 10.1% has bought the Sterling back to earth. GBPUSD currently trades below 1.21, with the headline inflation reading marking a third monthly decline after rising to the 41-year high in October. Core CPI, which excludes volatile food and energy items, slid to 5.8% on a yearly basis compared to the 6.2% expected and 6.3% in previous readings.

Bank of England’s Officials have recently highlighted the data dependency for further rate hikes, and a natural decline in inflation coupled with mixed data could make the central bank rethink any need for further rate hikes for now. Analysts at Nomura stated that ''pay growth over recent months in the UK has still been strong enough, in their view, to justify another 25bp hike by the Bank of England at its March meeting", however differences in opinion amongst economists as to how fast inflation will fall will keep uncertainty alive regarding the outlook of UK interest rates.