Sterling Slips After UK Jobs Data and Political Developments
Market Reactions to UK Economic and Political News
By Stefano Rebaudo
May 19 (Reuters) - Sterling dipped on Tuesday after data showed that Britain's employers reined in their hiring and posted fewer job vacancies in April.
UK Labour Market Data
The Office for National Statistics said the jobs drop was the biggest since May 2020, at the start of the COVID-19 pandemic, but stressed that the figures were likely to be revised.
Impact on Currency Markets
The dollar edged up as investors weighed Middle East tentative peace hopes against concerns that the Federal Reserve could hike rates this year.
The pound was last 0.26% lower against a broadly stronger dollar at $1.3399, after jumping by 0.83% the day before.
Analyst Commentary
“The main trigger for the reversal higher for the pound were reassuring reports that potential Labour leadership candidate Andy Burnham has ruled out changing the government’s self-imposed fiscal rules,” said Lee Hardman, senior currency economist at MUFG.
Political Developments in the UK
Greater Manchester Mayor Andy Burnham is seeking a seat in parliament that would allow him to challenge British Prime Minister Keir Starmer, who is under intense pressure from within his Labour Party to quit. Starmer said on Monday his time as leader of the country was not over.
“The relief rebound for the pound has been dampened this morning by the release of much weaker-than-expected UK labour market data,” MUFG’s Hardman added.
Bank of England Rate Hike Expectations
Data may dampen near-term expectations for Bank of England rate hikes in response to the energy price shock.
The UK rates market, however, still prices in a hike at the July Monetary Policy Committee meeting, suggesting investors are placing limited weight on the sharp drop in employment reported on Tuesday.
Outlook for UK Political Stability
Analysts also said an early resolution to the political turmoil in Britain looked unlikely.
Depending on the outcome of the June by-election, a full leadership contest could follow, stretching through July and potentially into August, during which international investors may be inclined to steer clear of UK assets.
(Reporting by Stefano Rebaudo; Editing by Aidan Lewis)
