UK unemployment at a 5-year high

Yesterday's currency recap

Global markets were relatively subdued today as many major exchanges traded around holiday calendars, with US markets closed for Presidents' Day and several Asian markets quiet due to regional holidays.

GBP traded with a softer bias as gilt yields eased following comments from Bank of England rate-setter Catherine Mann, who described the UK economy as “sluggish” and “tepid”, noting consumers remain scarred by high inflation. Her remarks fuelled speculation that the BoE could move toward a rate cut as soon as next month, reinforcing the policy-easing narrative. Rate markets now price around 48bps of cuts this year, slightly higher than late last week, weighing on GBP at the margin. With CPI on Wednesday, GBP remains highly data-sensitive – softer inflation readings would likely cement easing expectations and pressure the currency further.

Today's GBP rates

Key data points

What we think

This morning's UK jobs report came in broadly weaker than expected, with unemployment rising to 5.2%, alongside easing wage growth and signs of growing slack in the jobs market. While private sector pay growth remains a touch above the level consistent with the 2% inflation target, it is broadly in line with projections and trending lower. Combined with softer inflation prospects – data due tomorrow – and a more dovish tone from the Bank of England, this strengthens the case for an earlier rate cut, with March’s odds rising to 82% from 75% yesterday. GBP is weaker to start the day.

Attention will fall on the February ZEW survey from Germany, where expectations are seen improving to 65 from 59.6, and current conditions modestly less negative. A stronger-than-expected sentiment rebound could offer near-term support to the EUR, particularly if it reinforces signs of resilience in the German economy.

In Canada, CPI will be closely watched for confirmation that inflation remains on a gradual cooling path. Any downside surprise would reinforce expectations that the Bank of Canada has room to ease further this year, weighing on CAD. Conversely, a firmer print could temper easing bets and provide near-term support to the currency, particularly against a softer USD backdrop.

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