GBP

Sterling rallied during early trade to multi-week highs against both the euro and dollar on Tuesday following a buoyant jobs report, but relinquished the bulk of early gains late in the afternoon.

According to the latest data released by the Office for National Statistics (ONS), UK unemployment showed a modest improvement on a month on month basis in July falling from 4.7% to 4.6% with the number of workers on payrolls increasing by a record 241,000. UK job vacancies in the three months to August also enjoyed an uptick to read 249,000 above it’s January-March level.

Whilst generally falling in line with market expectations, yesterday’s jobs report is generally positive and is certainly showing some resilience. Recent sterling sentiment has ebbed and flowed along with investors expectations as to whether or not the Bank of England (BoE) will tighten economic policy and ultimately raise interest rates. Along with higher inflation, a return to pre-pandemic jobs levels has been another requirement of the BoE before even considering tightening policy so the resilience shown in this report will be a relief to sterling bulls.

Having said that, the furlough scheme officially comes to an end at the end of September and whilst yesterday’s jobs report was generally good, one good jobs report is unlikely to change the BoE’s current stance on monetary policy. If August and September’s reports remain strong then this should be enough to force the BoE’s hand which will be good news for sterling.

USD

The dollar fell yesterday afternoon as a softer-than-expected US inflation reading cooled immediate expectations that the Federal Reserve (Fed) may tighten economic policy at next week’s Fed meeting.

According to the data, US inflation rose at its slowest pace in six months for August suggesting that inflation has likely peaked. Core CPI (YoY) fell to 4% missing expectations of 4.2% and Core CPI (MoM) fell for the second consecutive month missing expectations of 0.3% to read 0.1%.

The downbeat data disappointed USD bulls who up until now had been pricing in the US central bank as being the first to normalise monetary policy post-covid. Whilst the data has generally been strong, it seemingly supports Fed Chair Jerome Powell’s recent guidance that the tightening of monetary policy hasn’t been needed due to the transitory nature of the spike in inflation and will likely return to normal levels next year.

Key announcements

07:00 – GBP – UK CPI (YoY) (Aug) beat expectations to read 3.2%

10:00 – EUR – Industrial Production expected to read 0.6%