IFX Market Report: Tuesday 12th October 2021

The UK labour report was published this morning, showing an improved unemployment rate of 4.5%. The number of payroll employees “showed another monthly increase, up 207,000 to a record 29.2 million in September 2021, returning to pre-coronavirus (COVID-19) pandemic (February 2020) levels”. Since the pandemic began “the employment rate generally decreased, and the unemployment rate increased”, however, since the “end of 2020, both have shown signs of recovery”. The number of job vacancies in July to September 2021 also came in at a record high of 1,102,000 – an increase of 318,000 from its pre-pandemic level. It is worth noting that this “was the second consecutive month that the three-month average has risen over one million”. Average Earnings also beat expectation by 0.2% coming in at 7.2%. This morning’s strong labour report will likely be welcomed by the BoE as they look to raise interest rates.

In regard to UK interest rates, the FT reports that “markets are pricing a rise to 0.25% in the base rate by December, with a further increase to 0.5% by March next year”. The prospect of higher interest rates had an effect on UK government bond prices yesterday, “with 10-year gilt yields climbing to their highest since May 2019 at 1.21%”. Both BoE Governor Andrew Bailey and MPC member Michael Saunders at the weekend gave further indications that the BoE will raise rates soon. In an interview with the Yorkshire Post Bailey stated that he was “concerned about inflation” and the BoE will use all the tools available to deter “high inflation expectations becoming embedded”. Michael Saunders said to the Sunday Telegraph that the recent move in markets pricing in an earlier rate increase was “appropriate”.

GBPUSD had a quiet start to the week yesterday, dropping only slightly from where it opened. Cable started the day at 1.3665 and closed at 1.3623. Overnight however the pair came under pressure and trades this morning in the 1.35 range.

GBPEUR also recorded a loss on Monday. The pair opened at 1.1798 and closed at 1.1772.

EURUSD made a minor loss yesterday. The pair started at 1.1582 and finished the day at 1.1572.

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