UK jobs report did everything possible to ensure that GBPUSD quotes collapsed from the zone of seven-month highs. However, signs of an improving economy and inflation remaining at elevated levels are making local assets attractive to foreign investors and helping the pound recover. Moreover, markets believe that the speed of monetary expansion of the Bank of England will be less than that of the Fed and the ECB.
Average wages in the UK have been slowing for the past five months, and the unemployment rate has risen to 3.9%, indicating a cooling labor market and allowing the BoE to breathe a sigh of relief. However, Andrew Bailey says he is no longer as concerned about the impact of wages on inflation. According to the head of the UK Central Bank, a sharp rise in unemployment is not required to slow down consumer prices.
Bank of America believes that the labor market will remain strong, the economy will recover, and high volumes of UK bond issues against the background of the Bank of England's QT program will lead to an increase in their yield and push GBPUSD to 1.37. Indeed, the demand for UK debt securities is off the charts. With £3.75bn of 10-year benchmarks sold, bids were 3.61 times higher. Capital inflows are supporting sterling.
On the contrary, Bloomberg predicts a further slowdown in wages and rising unemployment. The cooling of the labor market will make it possible for the interest rate to decrease as early as May, although summer looks like a more likely period for the start of BoE monetary expansion. Derivatives give a 50% chance that this will happen in June and are completely certain that it will start in August. The scale of monetary easing is estimated at 68 bps in 2024. This is less than that of the Fed and the ECB, which in theory should help the pound against the US dollar and euro.