Jobs figures send euro, sterling higher; US dollar slips before CPI

THE euro and sterling rose against the US dollar on Tuesday (Feb 14), as UK basic-pay growth sped up and eurozone employment rose more than expected, underlining the resilience and tightness of the labour market across the region.

A flash estimate of eurozone employment showed the number of people with jobs in the region increased by 0.4 per cent quarter on quarter, despite slowing economic growth. This was twice the speed expected by economists in a Reuters poll.

In Britain, data showed the pace of growth in basic pay sped up again in the last three months of 2022, even as the labour market cooled. The pace of pay growth in Britain is being monitored closely by the Bank of England (BOE) as it gauges how much higher to raise interest rates.

Stuart Cole, head macro economist at Equiti Capital, said: “With the BOE having already signalled on numerous occasions that a tight labour market remains a threat to price stability, today’s figures will cement expectations that interest rates will be raised further at next month’s Monetary Policy Committee meeting.”

Money markets are pricing in an 80 per cent chance of a quarter-point percentage BOE hike in March and a 74 per cent chance of a 50 basis point (bp) interest-rate hike by the European Central Bank in March.

By 1055 GMT, the euro was up 0.3 per cent against the US dollar at US$1.0756, having fallen 2.56 per cent since touching a ten-month high of US$1.1034 on Feb 2. Sterling rose 0.4 per cent to US$1.2192 after briefly touching an 11-day high against the greenback.

The US dollar index, which measures the greenback against six major rivals, fell 0.18 per cent to 103.03 ahead of a keenly anticipated inflation report, while the yen strengthened as surprise pick Kazuo Ueda was nominated as the Bank of Japan’s (BOJ) next governor.

Markets are looking to US consumer inflation data for further clues on the Federal Reserve’s policy outlook. The headline number is expected to have risen by an annual 6.2 per cent in January, according to a Reuters poll, after December’s 6.5 per cent gain.

Moh Siong Sim, a currency strategist at the Bank of Singapore, said the debate right now is whether inflation will be stuck at 3 per cent to 4 per cent or move lower to 2 per cent, in line with the market’s earlier hopes.

“The odds are shifting to a more reasonable assessment that we might possibly get stuck at 3-4 per cent and the Fed will have to do more.”

The US central bank earlier this month raised interest rates by 25 bps, and said that it was turning the corner in its fight against inflation.

The market is pricing US interest rates to peak at around 5.2 per cent in July and to end the year at 4.9 per cent, moving away from earlier expectations for the start of more sharp rate cuts later this year.

In Japan, investors bet that the surprise choice of Ueda as BOJ governor could preclude an end to the unpopular yield-curve control policy.

The yen strengthened 0.1 per cent to 132.27 per US dollar. The yen dropped sharply last year to a 32-year low of 151.94 per US dollar, as US rates rose and Japanese rates stayed near zero. But the yen has since recouped those losses as the Fed looks to pause its tightening, and as speculation increases that the BOJ will move away from its ultra-loose policy.

Data on Tuesday showed Japan’s economy averted a recession but rebounded much less than expected the quarter to December 2022 as business investment slumped, meaning an exit from stimulus will prove a challenge for the BOJ. REUTERS