Pound Sterling attracts bids as UK Unemployment Rate drops to 4.9%

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The Pound Sterling’s (GBP) initial reaction remains positive against its major currency peers after the release of the United Kingdom (UK) labor market data for the three months ending February. The GBP/USD pair is still marginally down to near 1.3525 during the European trading session on Tuesday.

The Pound Sterling attracts slight bids against its major peers after the UK employment data release.
The UK’s ILO Unemployment Rate arrives lower at 4.9% in the three months ending February.
Investors await the UK inflation, private sector PMI, and the Retail Sales data.

The Office for National Statistics (ONS) has reported that the ILO Unemployment Rate fell to 4.9%, while it was expected to remain steady at 5.2%. The report also shows that the economy created 25K new jobs in the quarter ending February, lower than the previous reading of 84K.

Average Earnings Excluding Bonuses, a key measure of wage growth, arrives higher at 3.6% Year-on-Year (YoY) against 3.5% expected, but remained lower than 3.8% in the three months ending January. The wage growth measure, Including Bonuses, also rose at a faster pace of 3.8% against estimates of 3.6%. In three months ending January, the data grew by 4.1%, revised higher from 3.9%.

The lower jobless rate is expected to allow traders to hold bets supporting the Bank of England (BoE) leaving interest rates unchanged in the policy meeting on April 30.

For more cues on the UK interest rate outlook, investors await the Consumer Price Index (CPI) data for March, which will be released on Wednesday. The CPI report is expected to show that the headline inflation accelerated to 3.3% YoY from 3% in February, in the wake of higher energy prices due to the war in the Middle East.

This week, investors will also focus on the preliminary S&P Global PMI data for April and the Retail Sales data for March, which will be released on Thursday and Friday, respectively.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.