PoundSterlingLIVE - Pound to Euro rate rises to 1.17 in the immediate aftermath of the UK labour market release while the Pound to Dollar exchange rate goes to a new 2023 best at 1.2899.
The British Pound hit a new 2023 high against the Dollar and was higher against the Euro in the initial reaction to the release of labour market statistics for May and June was to go higher.
The ONS reported wage figures that were above expectation, but a rise in the unemployment rate and an increase in the claimant count suggest the labour market is finally starting to 'ease'.
The Bank of England is particularly interested in the labour market as wages are a key driver of domestic inflationary pressures which are still evident in today's release: the average earnings index, excluding bonuses, rose 7.3% in May, above the consensus expectation of 7.1%, and in line with April's 7.3%.
The average earnings index with bonuses included rose 6.9% in May, a touch higher than expectations at 6.8% and higher than April's 6.7%.
But the wage figures formed the 'hawkish' element of the report as there are signs wage pressures, a lagging indicator, will likely come down as employment growth slows.
The unemployment rate rose to 4.0% in May, a surprising jump on April's 3.8% and the market expectation of 3.8%.
Employment rose 102K in the three months to May, which represents an undershoot of the market's expected 125K and the 250K reported in April. The more timely claimant count showed those seeking out-of-work benefits rose 25.7K in June, ahead of the -8.6K expected and the -22.5K reported in May.
So while inflationary pressures are still evident in the wage data, the market is almost certainly turning, which should ease pressure on the Bank of England to raise interest rates.
The Pound's initial reaction was to rise, in a potential sign that perhaps lower Bank of England rate hike expectations are supportive in so far as this lessens the chance of a sharp economic slump down the line.
Or perhaps the market has simply reacted to the hotter-than-expected wage data as this suggests further rate hikes are incoming?
For sure, it will take further data releases and bond market developments to deliver a verdict on what the Pound is signalling.
An easing in UK labour market pressures was signalled by a more timely survey released yesterday from KPMG and the Recruitment and Employment Confederation (REC), which revealed the number of vacancies in June climbed at the slowest pace in 28 months, with a significant drop in permanent placements.
Staff availability rose for the fourth month in a row, with the supply of both temporary and full-time workers surging at the fastest pace recorded since December 2020.
Recruiters said companies became reluctant to take on new staff in June owing to the darkening UK economic outlook, particularly as the rising cost of living and competition for skilled workers have pushed up wages.
Upwards pay pressure slumped to its lowest level in 26 months, with rates of starting salary and temporary wage inflation falling to more than a two-year low.
An original version of this article can be viewed at Pound Sterling Live