UK jobs report near 2 week high as BoE expects rate hikes

UK jobs report near 2 week high as BoE expects rate hikes

LONDON - Oct 12 Reuters - On Tuesday, sterling was near a two week high against the dollar as UK jobs data presented in largely in line with forecasts, keeping expectations of future rate hikes from the Bank of England intact.

On Monday, the pound set a high against the greenback on two-week high on hawkish comments by BoE governor Michael Saunders, who stressed the need to prevent inflation, and fellow policymaker Andrew Bailey, who noted households must brace for significantly earlier interest rate hikes.

The BoE, which is gearing up to become the first big 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 UK employers expanding their payrolls to a record high in September, while the unemployment rate edged down to 4.5% in 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 November meeting of the Bank.

By 1510 GMT, sterling traded about flat against the dollar close to the mark of $1.36 and below the peak of $1.3674 on Monday - US currency exchange rate was a touch higher with 0.1% increase in 84.91 pence.

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

Positioning data by the CFTC on Friday showed the biggest weekly trimming of short positions in the pound in two years, with a shift from neutral to tight positions on the currency.

At the same time, respondents to an October market sentiment survey from Deutsche Bank said they expected the BoE to err on the conservative side.

Investors are clear concern about the impact on demand of a rate hike given the rise in energy prices and the April hike in national insurance tax, said Jane Foley, head of FX strategy at Rabobank. There are fears combined headwinds could derail recovery. Investors are also monitoring the tensions between Britain and the European Union over the Northern Irish Protocol, which governs post-Brexit trade in the province.

On Tuesday, the British Brexit Minister David Frost repeated his call for the protocol to be changed amid complaints of disruption in trade between Northern Ireland and the rest of the United Kingdom since it left the European Union full time.

Frost is hoping for two to three weeks of intensive talks with the EU over the protocol, Britain said.