UK payrolls rose 22K in April, beating estimates and holding the jobless rate at 4.4%, tempering expectations for immediate Bank of England rate cuts ahead of the June 19 decision.
The stronger-than-expected UK payrolls report reduced the likelihood of aggressive BoE easing, lifting sterling. Cable rose to $1.2850, breaking above the 50-day moving average as markets repriced rate-cut expectations.
The data beat reined in expectations for BoE rate cuts, with the probability of an August cut falling to 60%. Higher near-term rates made sterling more attractive, driving the rally.
Immediate resistance sits at $1.2900, the April high. A break above targets $1.3000. Support is at the 50-day moving average near $1.2750, with stronger support at $1.2650.
A hawkish hold that pushes back against rate cuts would extend the pound's gains, while a dovish surprise highlighting growth risks could quickly erase the move and send cable back below $1.2800.
Gilt yields edged higher as the improved labor market reduced the urgency for near-term rate cuts. The 10-year yield rose 5 basis points to 4.30%, reflecting reduced BoE easing expectations.
The strong data pushed back against expectations for early BoE rate cuts. As traders saw less need for immediate easing, they sold gilts, pushing the 10-year yield up to 4.30%.
It suggests markets are now less certain the BoE will cut aggressively. Yields are repricing to a slower easing path, aligning with a 'higher for longer' rate scenario.
The FTSE 100 dipped 0.2% as a stronger sterling weighed on the export-heavy index. However, economically sensitive domestic stocks gained, offsetting some losses, leaving the benchmark flat overall.
The FTSE 100 slipped initially as the pound rose on the data, but domestic-focused shares gained on the economic resilience. The index ended flat, underperforming European peers.
The FTSE 100 is highly sensitive to sterling because over 70% of its revenues come from overseas. A strong pound hurts these companies' earnings when converted back, often overshadowing positive domestic data.
EUR/GBP dropped 0.3% to 0.8550 as the pound outperformed the euro on the robust UK employment report, widening the rate differential in favor of sterling.
The pair fell as the pound surged on repriced BoE expectations while the euro lacked a catalyst. Sterling's strength widened the rate advantage, pushing EUR/GBP to a one-week low.
Further downside to 0.8500 is possible if UK data continues to beat. A break below that could target 0.8470, the May low. But any BoE caution could spark a sharp reversal.
A stronger pound, which comprises 11.9% of the DXY basket, weighed on the dollar index. DXY slipped 0.2% to 96.80, extending its decline from earlier in the week.
The pound is a large component of DXY, and its sharp rally directly dragged the index lower. Additionally, the contrast between a robust UK labor market and a possibly slowing US economy pressured the dollar.
It depends on upcoming US data and the Fed outlook. If US indicators stay strong, DXY could recover quickly. But if UK growth diverges positively, the pound may continue to weigh on the index in the short term.
UK payrolls increased by 22,000 in April, exceeding forecasts of 15,000, while the unemployment rate held at 4.4%. The figures ease fears of a sharp labor market downturn and may reduce pressure on the Bank of England to cut rates aggressively. Markets now price a 60% chance of a quarter-point cut in August, down from 75% before the release.
The report showed a 22,000 increase in payrolls for April, well above the 15,000 forecast, and an unchanged unemployment rate at 4.4%. This indicates the labor market is stabilizing after a period of softening, easing recession fears.
The stronger data reduces the urgency for immediate rate cuts. Markets now see a lower probability of an August cut, and the BoE is likely to keep rates on hold at its June 19 meeting while monitoring inflation.
Resilient consumer spending and a tentative improvement in business confidence have supported hiring. The easing of post-Brexit trade frictions and a pick-up in services activity also contributed to the stabilization.