Sterling falls as cracks appear in Britain's job market

Britain's unemployment rate unexpectedly rose to 3.9% in the three months to March as more people sought to get back into the jobs market, driving the first fall in total payrolled employees in more than two years in April. Sterling fell by as much as 0.52% against the dollar to a session low of $1.2466, and by as much as 0.4% against the euro.

The pound fell on Tuesday, after data showed a rise in the UK unemployment rate, which could take some of the pressure off the Bank of England to raise interest rates and, in theory, boosts sterling's appeal to overseas investors. Britain's unemployment rate unexpectedly rose to 3.9% in the three months to March as more people sought to get back into the jobs market, driving the first fall in total payrolled employees in more than two years in April.

Sterling fell by as much as 0.52% against the dollar to a session low of $1.2466, and by as much as 0.4% against the euro. The pound was last down 0.3% against the dollar at $1.25 and down 0.3% against the euro at 87.06 pence.

"With the BoE having put a lot of weight on this release, as well as the next CPI print, the chances of a pause at the June meeting have slightly increased," ING strategist Francesco Pesole said in a note. "The price action in the pound this morning is mirroring this: euro/sterling has broken back above 87.00 and we think there is still ample upside room as further BoE tightening is priced out of the Sonia curve," he said, referring to the interest-rate derivatives market.

Right now, the derivatives market shows traders believe UK rates will peak at 4.80% in November, down from 4.86% a day ago. However, it's not all plain sailing. Tuesday's data showed pay growth - which is at the heart of the BoE's debate about whether to raise interest rates further - remained strong by historical standards.

Basic pay rose by 6.7% in the three months to March compared with the same period last year, up from 6.6% in the three months to February. That said, with inflation at 10.1%, pay growth in real terms is still deeply negative and close to its weakest in years.

"The labour market report is pretty symptomatic of the broader economy. It's stagflationary," TraderX strategist Michael Brown said. "Earnings growth is starting to run away with itself. Unemployment is rising, payrolled employment is falling. It's not particularly pretty, but I don't think there's anything in there that will deter the Bank from another move in June," he said.

Markets are attaching a 68% chance that the BoE will raise rates by a quarter of a point to 4.75% and a 32% chance of no change.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)