Jobs Data Lift Euro, Sterling; Dollar Retreats Before CPI
LONDON— As basic wage growth in the UK accelerated and employment increased more than anticipated in the eurozone, the euro and sterling appreciated versus the dollar, highlighting the region's labour market's resiliency and tightness.Despite slowing economic development, the number of people with jobs in the eurozone climbed by 0.4 percent quarter over quarter, which was twice as quickly as predicted by experts surveyed by Reuters.
According to data from Britain, basic wage growth accelerated once more in the final three months of 2022 despite a slowing job market. The Bank of England (BoE) closely tracks the rate of pay growth in Britain as it determines how much higher to boost interest rates.
The figures released today will "cement expectations that interest rates will be raised further at next month's MPC meeting," according to Stuart Cole, head macro economist at Equiti Capital. "The BoE has already signalled on numerous occasions that a tight labour market remains a threat to price stability."
The probability of a quarter-point rate increase by the Bank of England in March is 80 percent, and the probability of a 50 basis point increase by the European Central Bank in March is 74 percent, according to the money markets.
The euro had declined 2.56 percent after reaching a ten-month high of $1.1034 on February 2 and was up 0.3 percent against the dollar at $1.0756 as of 10:55 GMT. After briefly striking an 11-day high versus the dollar, sterling gained 0.4% to $1.2192.
CPI Next US
The dollar index, which compares the value of the dollar to six major rivals, dropped 0.18 percent to 103.03 ahead of a much-anticipated data on inflation, while the yen gained following the surprise nomination of Kazuo Ueda as the new governor of the Bank of Japan.
A Reuters poll predicts that the headline number for consumer inflation in the United States will have increased by an annual 6.2 percent in January, following a gain of 6.5 percent in December. This data is being watched closely by the markets for additional hints on the Federal Reserve's policy outlook.
The current point of contention, according to Moh Siong Sim, a currency analyst at the Bank of Singapore, is whether inflation will remain stuck at 3 to 4 percent or decline to 2 percent, as the market had first anticipated.
"The probability is moving to a more fair estimate that we may potentially get trapped at 3-4 percent and the Fed will need to do more," the author writes.
This month, the U.S. central bank increased interest rates by 25 basis points and declared that its battle against inflation had reached a turning point.
Japanese currency appreciation increased to 132.27 per dollar, up 0.1%. The yen plunged to a 32-year low of 151.94 per dollar last year as U.S. rates increased while Japanese rates remained at zero, but it has now recovered those losses as the Fed seeks to pause its tightening and speculation grows that the BOJ may abandon its ultra-loose policies.
Data released on Tuesday revealed that while business investment declined from October to December, Japan's economy avoided going into recession. This means that the BOJ will face difficulties in winding down its stimulus programme.
