Sterling falls as cracks appear in Britain’s job market

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LONDON – The pound sterling fell on Tuesday, after data showed a rise in the unemployment rate in the United Kingdom, which could take some pressure off the Bank of England to raise interest rates and, in theory, boost sterling’s attractiveness to foreign investors.

Britain’s unemployment rate unexpectedly rose to 3.9% in the three months to March as more people sought to return to the labor market, leading to the first drop in total attached employees in more than two years in April.

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The British pound fell as much as 0.52% against the dollar to a session low of $1.2466, and as much as 0.4% against the euro.

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The pound last fell 0.3% against the dollar at $1.25, and fell 0.3% against the euro at 87.06 pence.

“With the Bank of England putting a lot of weight on this release, as well as the following CPI reading, the chances of a stop in the June meeting have increased slightly,” ING strategist Francesco Pessol said in a note.

“Price action in the pound this morning reflects this: EUR/GBP has broken back above 87.00 and we think there is still significant upside as further BoE tightening is priced in off the Sonya curve,” he said, referring to the interest-rate derivatives market. .

Right now, the derivatives market is showing that traders believe UK interest rates will peak at 4.80% in November, down from 4.86% the day before.

However, not everything is easy sailing. Tuesday’s data showed that wage growth – which is at the heart of the Bank of England’s debate about raising interest rates further – remained strong by historical standards.

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Base salary increased 6.7% in the three months through March compared to the same period a year ago, up from 6.6% in the three months through February.

However, with an inflation rate of 10.1%, wage growth in real terms remains deeply negative and near its weakest level in years.

“The labor market report is a symptom of the broader economy. It is stagflation,” said Michael Brown, TraderX Strategist.

“Earnings growth is running out of its own accord. Unemployment is rising, and paid employment is falling. It’s not particularly pretty, but I don’t think there’s anything that would deter the Bank from another move in June.

Markets are pinning a 68% chance that the Bank of England will raise interest rates by a quarter point to 4.75% and a 32% chance of no change.

(Reporting by Amanda Cooper; Editing by Nick McPhee)