Pound softer after labour market data
With the US out on a public holiday, it was very quiet across equity, bond and foreign exchange markets yesterday. In FX, the main currency pairs ended little changed from last Friday’s closing levels. Sterling is under a little pressure this morning though following softer than expected UK labour market data released a short while ago – which has led the market to raise the chances of a Bank of England (BoE) rate cut at next month’s monetary policy meeting – weakening to $1.3580 against the dollar and to £0.8715 versus the euro. The single currency, meanwhile, is little changed against the dollar, trading at around $1.1840 this morning.
The market is now pricing in about an 80% chance of a 25bps rate cut from the BoE next month following this morning’s data, and is fully priced for such an outcome at the April meeting. UK bond yields are edging down at the start of play today as a result, with 2- and 10-year yields around 3bps lower. US yields have nudged down in overnight trading, while German yields are also a little lower at the open this morning. In equity markets, Asian stocks were mostly weaker overnight, while European indices are marginally in the black in early trading this morning.
Employment in the UK edged up in Q4 2025 according to the latest Labour Force survey, increasing by 0.2% on the quarter (though separate HMRC data shows the number of payroll employees continues to decline), but the unemployment rate rose to 5.2% (from 5% in Q3) amid a further decline in the ‘inactivity rate’. Private sector wage growth – which the BoE monitors closely to gauge the extent of inflationary pressures in the economy – eased to 3.4% year-on-year in the final quarter of last year, well down from 6.2% y-o-y in Q4 2024, leaving it on track to fall to 3.2% in the second quarter of this year as projected by the BoE in this month’s monetary policy report.
Industrial production in the Euro area ended 2025 on a weak note, falling by almost 1.5% in December (from November). It was still up around 0.4% on the quarter though – and hence made a small positive contribution to recorded GDP growth of 0.3% – while the y-o-y pace of growth picked up to 1.8% from 1.5% in the third quarter of the year.
Looking to the day ahead, US economic data due include the ADP weekly jobs report, the Empire manufacturing survey for February, and the NAHB market index, also for February, while the only data out of the Euro area is the latest ZEW investor confidence survey. A few ECB/Fed members are scheduled to speak over the course of the day.