The British Pound (GBP) strengthened against the Euro (EUR) following the release of UK labor market data, which points to a more hawkish stance from the Bank of England (BoE), according to ING’s FX analyst Francesco Pesole.
Key Takeaways
- Stronger-than-Expected Employment Data
- UK employment grew by 173k in October on a 3M/3M basis, exceeding expectations of just 5k.
- While this measure can be volatile and less reliable, it still reflects resilience in the labor market.
- Wage Growth Accelerates
- The key focus for the BoE is the sharp acceleration in wages, with both headline weekly earnings and ex-bonus measures rising above 5.0%.
- Notably, wage growth is concentrated in the private sector, where pay surged at a 12% month-on-month annualized rate, underscoring strong ties to broader economic trends.
- Mixed Signals in the Jobs Market
- Despite robust wage growth, signs of cooling persist: job vacancies remain below pre-COVID levels, suggesting some slack in the labor market.
Implications for EUR/GBP
- The hawkish wage data is likely to strengthen the BoE’s position, amplifying policy divergence with the dovish European Central Bank (ECB).
- Short-term outlook: EUR/GBP is expected to stay below 0.830, with risks leaning further to the downside as the BoE is likely to hold rates steady this week while emphasizing a cautious policy path.
Conclusion
Today’s data provides BoE hawks with fresh arguments for maintaining a vigilant stance on inflation. This divergence between the BoE and the ECB bolsters the GBP, keeping EUR/GBP under pressure in the near term. Traders should monitor ongoing labor market trends and BoE messaging for further cues.
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