Sterling slips, UK jobless rate lowest since 2019

LONDON: Sterling slipped against a stronger dollar on Tuesday after data showed that Britain’s jobless rate fell in the three months to February.

While stock markets were in the red, the dollar was a touch higher as traders waited for U.S. inflation data that was expected to reinforce expectations for the Federal Reserve to tighten monetary policy aggressively.

Britain’s jobless rate fell further below the level it was at before the coronavirus pandemic, data showed.

The Bank of England is watching closely for signs that the lack of candidates to fill jobs will push up wages to the extent that it risks a wage-price spiral. But workers’ pay is failing to keep up with accelerating inflation - as pay excluding bonuses saw its biggest drop since 2013.

“For the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently),” wrote ING FX strategists in a note to clients.

“We prefer any GBP strength to be played out against the euro and the Japanese yen, while cable still looks vulnerable to 1.2850 in a strong dollar environment.”

The pound did not move sharply on the data and by 0851 GMT was down 0.2% on the day versus the dollar at $1.3001.

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Versus the euro it was little changed at 83.505 pence per euro.

British government bond yields rose, with the 2-year gilt hitting its highest since 2009 - tracking a broader rise in German and U.S. bond yields. The 20-year gilt was up at its highest since the day of the Brexit referendum in 2016.

The pound took a brief hit on Monday from data showing that the British economy slowed more sharply than expected in February.

Last Friday, sterling hit its lowest since November 2020, at $1.29825.

Sterling has weakened overall so far this year, while the dollar has been supported by the prospect of a more aggressive pace of Fed rate hikes pushing U.S. Treasury yields higher.

For the Bank of England, money markets were pricing in around 143 basis points of rate hikes by the end of the year.