A bit of caution in the air for GBP yesterday ahead of this morning's job wage numbers, with markets booking profits on last week's gains. USD firmed up tracking treasury yields also.
*Daily move - against G10 rates at 7:30am, 12.03.24
** Indicative rates - interbank rates at 7:30am, 12.03.24
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Signs of the UK job market cooling were signalled this morning, with wage growth declining more than expected, the unemployment rate rose, and there was a decrease in employment. As a result, GBP is slightly lower on the day. So, there are signs that there could be challenges for the job market, but this set of data isn’t warranting any repricing on earlier rate cuts by the BoE. Further GBP declines may be modest ahead of tomorrow’s GDP numbers, which may well show signs that growth rebounded in January.
For the rest of the day we wait for US inflation numbers, and whether any further easing in consumer prices will give markets the ammunition to continue to weaken USD, and thus see higher GBPUSD and EURUSD. The greenback has already lost 50% of the gains it made in 2024 in the last few weeks. Higher than expected inflation will confirm the persistence of inflationary pressures, and from this we would expect a sharp pullback on GBPUSD and EURUSD from its recent highs.
CPI is the big risk event today, and whether it provides enough ammo for markets to continue to sell USD, or whether we see a sharp reversal of the recent weakness. Headline inflation is expected to have risen to 0.4% whilst core inflation is expected to have slowed.
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