GBP/USD edges lower on jobs report

Today’s headlines

What’s happening: The British pound slipped against the US dollar this morning as investors assessed the latest jobs data.

What happened: UK’s unemployment rate surged to a five-year high in December, while wage growth eased, raising speculations of further rate cuts by the Bank of England.

Strength in the US dollar also weighed on the British pound this morning.

Why it matters: Data released on Tuesday showed that the UK’s unemployment rate climbed to 5.2% in the fourth quarter, from 5.1% in the previous three-month period. This was the highest unemployment rate since 2020. Excluding the pandemic era, the latest jobless rate was also the highest since 2015.

Wage growth, excluding bonuses, eased to 4.2% year-over-year to £691 per week in the three months to December, from 4.4% in the previous quarter. Regular private sector wage growth, the measure closely watched by the Bank of England, eased to 3.4% year-over-year, from the previous reading of 3.6%.

The number of payrolled employees declined by 11,000 to 30.3 million in January, versus a decline of 6,000 in the previous month.

The latest data raised speculations of another rate cut by the BoE in March, which weighed on the GBP. The Bank of England had kept interest rates unchanged at 3.75% earlier this month. However, more policymakers voted for a rate cut than markets were expecting.

Inflation data is due to be released this morning, which is widely expected to show headline inflation easing to 3% year-over-year in January, from 3.4% in the previous month. The BoE projects inflation to slow to about its 2% target in April.

Strength in the US dollar also exerted pressure on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to 97.21 this morning.

The GBP/USD pair fell 0.1% to 1.3554 this morning after hitting its weakest level since February 6 in the previous session. Despite the recent decline, the GBP has gained around 0.6% year-to-date versus the greenback, with President Donald Trump’s economic policies weighing on the US currency, while the UK’s economy has shown slightly better-than-expected growth.

The EUR/GBP forex pair edges higher to 0.8740.

What to watch: Data on retail sales, S&P Global manufacturing PMI and S&P Global services PMI will be released on Friday. UK’s retail sales volumes, which surged 0.4% in December, are expected to rise 0.2% in January.

The S&P Global UK manufacturing PMI, which rose to 51.8 in January from 50.6 in the previous month, is expected to edge higher to 51.9 in February. Analysts expect the S&P Global UK services PMI to decline to 53.6 in February from 54 in January.

The markets today

US stocks in focus today ahead of a basket of major economic reports

Context: Equity markets in the US closed mixed on Tuesday as investors digested the latest economic data.

Details: Concerns around higher valuations of AI stocks and the technology expected to disrupt several business models had resulted in a sharp selloff in software companies last week. Major Wall Street stock indices recorded their biggest weekly decline since mid-November last week.

The S&P 500 financials was among the top-performing sectors on Tuesday. Gains in banking stocks, including Goldman Sachs and JPMorgan Chase, lent support to the Dow Jones index as well.

Consumer staples was the worst-performing sector on Tuesday, with a 7% decline in the shares of General Mills after the company slashed its annual projections.

Norwegian Cruise Line was the top performer on the S&P 500 index on Tuesday, after activist investor Elliott Investment Management disclosed plans of taking an over 10% stake in the company.

Data released on Tuesday showed that the NAHB/Wells Fargo Housing Market Index fell to 36 in February from 37 in January, compared to market expectations of 38. The NY Empire State manufacturing index declined to 7.1 in February from 7.7 in the previous month, versus market expectations of 7.

The Dow Jones index added 32.26 points, or 0.07%, to close at 49,533.19, while the S&P 500 gained 0.10% to settle at 6,843.22 on Tuesday. The Nasdaq 100 fell 0.13% to close at 24,701.60.

What to watch: Investors await the release of data on durable goods orders (1730 UAE Time) and industrial production (1815 UAE Time) today. New orders for US-manufactured durable goods, which surged 5.3% in November following a 2.1% decline in October, are expected to decline by 2% in December. Analysts expect industrial production in the US to surge by 0.5% in January following a 0.4% gain in December.

The release of minutes from the recent FOMC meeting (2300 UAE Time) will also remain in focus.

Other Markets: European indices closed higher on Tuesday, with the FTSE 100, DAX 40, ACC 40 and STOXX Europe 600 Index up by 0.79%, 0.80%, 0.54% and 0.45%, respectively.

The news shaping the markets

The two days of US-brokered peace talks in Geneva to end the Russia-Ukraine war concluded without much progress. The news sent the USD/RUB pair lower in forex trading this morning.

Australia’s Westpac-Melbourne Institute Leading Economic Index fell by 0.1% in January following 0.1% growth in the previous month, which exerted pressure on the AUD/USD forex pair.

The Reserve Bank of New Zealand held its official cash rate unchanged at 2.25%, keeping borrowing costs at their weakest level since mid-2022, which sent the NZD/USD pair lower in forex trading this morning.

Colombia’s trade deficit rose to around $1.51 billion in December from $1.17 billion in the year-ago period, lending support to the USD/COP forex pair.

Japan’s trade deficit fell to ¥1,152.7 billion in January from ¥2,741.7 billion in the year-ago month. However, the USD/JPY pair rose in forex trading this morning.

What else to watch today

South Africa’s inflation rate (1200 UAE Time) and retail sales (1500 UAE Time), India’s M3 money supply (1530 UAE Time), US MBA mortgage applications (1600 UAE Time), building permits (1730 UAE Time), housing starts (1730 UAE Time), non-defence goods orders (1730 UAE Time), NY Fed services activity index (1730 UAE Time), Redbook index (1755 UAE Time), capacity utilisation (1815 UAE Time) and manufacturing production (1815 UAE Time) as well as Russia’s PPI (2000 UAE Time).