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GBP/USD Eyes Bailey, Jobs Report

The British pound is showing limited movement at the start of the week. In Monday’s North American session, GBP/USD is trading at 1.2610, down 0.15%.

Bank of England Governor Andrew Bailey will speak at a public event later today and the markets will be listening carefully, looking for hints about the BoE’s future rate path. The BOE kept rates unchanged at 5.25% for a fifth straight time at the meeting on January 31, as expected. The MPC vote was a surprise, however, with a three-way split. This indicates a divergence of views among MPC members as to the future rate path.

Inflation is running at a 3.9% clip, well above the 2% target and maintaining rates in restrictive territory should push inflation lower. At the same time, elevated interest rates could tip the weak UK economy into a recession, and weary home owners are looking for relief from high mortgage payments.

After Bailey’s remarks, market attention will focus on Tuesday’s employment report. The labour market has been cooling but remains in good shape and strong wage growth continues to drive inflation, which is a major headache for the BoE.

The economy is projected to have added 73,000 jobs in the three months to December, compared to 108,000 in the three months to November. Unemployment is expected to creep up to 4.0%, up from 3.9%, while average earnings including bonuses is projected to ease to 5.6%, down from 6.5%.

The Federal Reserve may have signaled that rate cuts are coming, but it has remained hawkish and continues to push back against market expectations of a rate cut. In December, Fed rate odds for a March cut were above 70%, but the odds have been shaved down to just 15%, as the US economy remains surprisingly strong and Fed members have dampened hopes of a March cut. We’ll hear later today from Richmond Fed President Thomas Barkin. Last week, Barkin said that he wants to be sure that inflation is clearly headed to 2% before he supports lowering rates.

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