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Sterling boosted by strong UK labour news

The Pound hits a fresh 2-week high ahead of UK inflation data..
UK data released this morning shows there was no material loosening in labour market conditions as the year ended last year. Wage growth remains elevated due to high vacancies and a small pool of available workers. A strong uptick in employment was most welcome and beat consensus comfortably. 

A tight labour market means the BoE can proceed with hiking interest rates to curb high inflation faster. If anything, the BoE needs the unemployment rate to rise slightly to take the pressure off wages continuing to rise, which is currently helping inflation to remain elevated. A shrinking UK workforce following the pandemic, has encouraged businesses to offer higher wages to attract and retain employees.

Sterling has reacted positively to the news as it means there is likely no end to the interest rate cycle just yet. This could be the start of a promising week for the Pound, if tomorrow throws no surprises. We feel the GBP v EUR rate is correctly placed for now with more upside expected in the GBP v USD in the days ahead..