Pound firms on robust UK jobs data

The pound trended broadly higher on Tuesday, with the currency being underpinned by a stronger-than-expected UK jobs report.

Sterling is in the process of relinquishing these gains this morning, however, with GBP/EUR sliding to €1.1666 and GBP/USD retreating to $1.2835. GBP/CAD has dipped to CA$1.7592, while GBP/AUD slips to AU$1.9333 and GBP/NZD soars to NZ$2.1324.

Looking ahead, the release of the latest inflation figures from both the UK and US could infuse significant volatility in the currency market today.

What’s been happening?

The pound firmed during yesterday’s session as GBP investors welcomed the release of the UK’s latest jobs data.

Data published by the Office for National Statistics (ONS) showed unemployment in the UK unexpectedly fell from 4.4% to 4.2% in June, beating forecasts it would tick up to 4.5%.

Coupled with stronger-than-expected wage growth figures, this lifted the pound as it caused GBP investors to trim their bets for two more interest rate cuts from the Bank of England (BoE) before the end of the year.

Meanwhile, the euro faced resistance on Tuesday as Germany’s latest ZEW economic sentiment index reported a sharp deterioration of morale in the Eurozone’s largest economy.

The US dollar was also subdued yesterday as USD investors erred on the side of caution ahead of today’s US consumer price index.

Also limiting the appeal of the ‘greenback’ was the release of the latest US producer price index as a drop in producer price growth last month dampened inflation expectations.

What’s coming up?

The pound is faltering this morning as the session opened with the publication of the UK’s consumer price index.

While this morning’s CPI figures reported headline inflation in the UK accelerated in July for the first time this year, the uptick was slightly weaker than expected.

Alongside a larger-than-expected drop in core inflation, this is stoking bets for a September rate cut from the BoE and sapping Sterling sentiment this morning.

The US will then publish its latest CPI figures later this afternoon. Markets will be closely watching July’s CPI figures as investors seek to gauge how aggressively the Federal Reserve may cut interest rates next month.

If inflation cooled as expected last month it may tip the odds in favour of a larger 50bps rate cut, piling pressure on the US dollar.

In the meantime, the Eurozone will publish its latest GDP estimate this morning. Will confirmation that growth remained stable in the second quarter help to underpin the euro?