Pound Sterling Today: Employment, PMI Stats To Set The Tone vs. Euro And Dollar

PoundSterlingLIVE – The edged higher against the Euro and Dollar as an initial reaction to a better-than-expected labour market survey, but moves will likely be limited ahead of the survey release due at 09:30 BST.

The ONS released its delayed labour market survey Tuesday, saying the fell to 4.2% in August, which defied expectations for an unchanged reading of 4.3%. The situation was aided by a smaller-than-expected loss of jobs at -82K on a rolling three-month basis in August (vs. -198K expected and a material improvement on July’s -207K).

The ONS warns of elevated uncertainty when measuring the labour market as it alters methodology to ensure greater accuracy, and revisions to today’s data over coming weeks are therefore likely.

On the margin, these data suggest the labour market is not deteriorating as fast as the Bank of England might have liked; therefore, it raises the prospects of a final 25 basis point hike in either November or December.

This is supportive of the Pound and could underpin the currency near current levels.

The exchange rate has been under pressure of late and is at 1.1486, the Pound to Dollar exchange rate is meanwhile extending a near-term recovery to consolidate above 1.22 at 1.2270.

“Looking at the ‘experimental’ data, we can see that unemployment in the UK is remaining stable, for now,” says Marcus Brookes, chief investment officer at Quilter (LON:) Investors. “We know that economic growth in the UK is slowing and could potentially turn negative for the fourth quarter, so today’s data provides further evidence that things may be beginning to roll over. For the Bank of England this may be just enough to continue with a pause at its next interest rate decision.

Even though the headline numbers beat expectations, the UK labour market does continue to ‘loosen’ with job vacancies in the July to September period at 988K, down 43K on the April to June period. This makes for a 15th consecutive quarter of falling vacancies.

This can keep a lid on any enthusiasm in the market for materially jacking up expectations for further rate hikes, thereby limiting the Pound’s upside potential.

Looking ahead, a services PMI of 49.5 is expected from the UK in the 09:30 BST release, with the anticipated at 44.6. The rule of thumb is that the Pound will move according to whichever side of expectation the data lands: higher on a beat, lower on a miss.

“If the forward-looking balances in recent activity surveys are anything to go by, October’s flash S&P Global/CIPS PMI surveys are likely to signal a further contraction in private sector output,” says Andrew Goodwin, Chief UK Economist at Oxford Economics.

An original version of this article can be viewed at Pound Sterling Live