LONDON: Sterling rose against the US dollar but fell to a one month low versus the euro on Tuesday after data showed the jobless rate rose in the three months to April, bolstering prospects that the Bank of England will continue to raise interest rates.
Britain’s jobless rate rose for the first time since late 2020, with official data showing it edged up to 3.8% in the three months to April from 3.7% for the three months to March.
The BoE is expected to raise interest rates again on Thursday.
Britain’s growth, however, is already expected to be among the weakest for rich countries in 2023, and there is uncertainty over how fast the BoE can raise interest rates this year to tame inflation without further hurting the economy.
Sterling rose 0.3% against the US dollar to $1.2168 at 0820, after touching a two-year low on Monday. Versus a strengthening euro, it fell 0.3% to 86.02 pence, touching a one-month low against the single currency.
“The UK ILO unemployment rate may have been slightly higher than expected but the labour report confirms that the jobs market is still tight and that further rate hikes from the BoE will be forthcoming,” said Jane Foley, head of FX strategy at Rabobank in London. Foley said the pound continued to be “vulnerable” as “the worsening growth outlook remains a thorn in the side of sterling”.
The employment data also showed there were signs of more people returning to the job market, where employers’ struggle to fill vacancies has added to the BoE’s inflation headache. Data on Monday showed Britain’s economy unexpectedly shrank in April, adding to fears of a sharp slowdown.
Analysts said Brexit headlines were also returning to weigh on the pound after Britain published on Monday plans to override post-Brexit trade rules for Northern Ireland by scrapping checks and challenging the role played by the European Union’s court in a new clash with Brussels.
“News that the Johnson government want to rewrite the Northern Ireland protocol is another negative for the UK investment backdrop,” Foley added.
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