British Pound: Stronger labour data backs BoE hikes – MUFG

MUFG’s Lee Hardman notes the Pound is strengthening, with EUR/GBP near its year-to-date low and GBP/USD above 1.3350, as stronger UK labour data show rising payrolled employment and private sector wage growth in line with Bank of England projections. He argues this supports expectations for BoE rate hikes and a lower EUR/GBP trading range between 0.8200 and 0.8400.

BoE repricing supports stronger Pound

"The pound has continued to strengthen at the start of the European trading session resulting in EUR/GBP falling back towards yesterday’s year-to-date low of 0.8393 while cable has risen above 1.3350. The pound’s recent upward momentum has been reinforced this morning by the release this morning of stronger UK labour market data which revealed that payrolled employment increased by 13k in September."

"Overall, the stronger labour market data will encourage the BoE to begin hiking rates as soon as next month. Boe officials including Governor Bailey have clearly signalled recently that is becoming harder to look through higher energy price and leave rates on hold. Weak labour market conditions have been used to justify caution over tightening policy."

"We continue to expect the BoE to hike rates next month and deliver a second hike early next year. A view that is already well priced into the UK rate market which is anticipating even more tightening and has almost three hikes priced in by March of next year. Positive cyclical economic momentum in the UK remains favourable for a stronger pound as long as the government ‘s upcoming Budget doesn’t undermine confidence in the credibility of their fiscal consolidation plans."

"EUR/GBP is currently attempting to break into a new lower trading range between 0.8200 and 0.8400 that was last in place between September 2024 and April 2025."

"In addition, the labour market report revealed that private sector wage growth moved up to 3.0%Y/Y which was in line with the BoE’s projection. However, it was the first increase since 20024, and the BoE will be watching closely as we go into the pay settlement period for 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)