The pound jumped to a two-week high against the dollar on Monday morning. Traders have been looking for signs that the Bank of England (BoE) will be prompted to raise interest rates due to inflationary pressures. Their heads were turned over the weekend when Michael Saunders – an external member of the central bank’s Monetary Policy Committee – said he expects the cost of borrowing to rise “significantly earlier” than currently forecast. However, he did not signal that a rate hike – which would be the first since 2018 and would help steady inflation – is likely in November.
Saunders told the Telegraph: “I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” adding “But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”
BoE Governor Andrew Bailey echoed his comments, telling the Yorkshire Post that he is “concerned” about above-target inflation, and that: “We are going to have a very delicate and challenging job on our hands so we have got to in a sense prevent the thing becoming permanently embedded because that would obviously be very damaging.”
UK jobs figures were in the spotlight on Tuesday morning. British employers added 207,000 workers last month, which took payrolls to a record high before the government’s furlough scheme expired.
Separate data from the Office for National Statistics showed the unemployment rate in the UK was 4.5% in the three months to August, down 0.1% from the previous month and in line with the consensus.
Average weekly earnings were up 7.2% compared to the same three months of last year, declining from the previous reading of 8.3%. Excluding bonuses, earnings increased by 6% in the three months to August, also slowing.
By Tuesday morning, the pound vs dollar rate had dropped to 1.35.
Dollar continues to feel jobs data pressure
A dry economic calendar on what was a bank holiday Monday in the US meant the dollar continued to feel the effects of Friday’s softer-than-expected jobs report. The disappointing data did nothing to soothe uncertainty over the Federal Reserve’s timeline for raising interest rates after just 194,000 nonfarm jobs were added in September – the weakest reading this year and well below the consensus.
A large upward revision of August’s data eased the disappointment slightly, but average earnings came in above forecasts, increasing concerns that inflation may strengthen at the same time as economic growth slows. However, the report failed to signal that the Fed won’t start tapering its bond purchases in November.
Industrial Production and Manufacturing Production numbers are published in the UK tomorrow. Meanwhile, the first data of note this week is scheduled for release in the US when the Consumer Price Index hits the headlines.