Euro Gains Slight Traction Against Pound with UK Employment Looming

The UK Employment data covering January and February which is scheduled to be released on Wednesday highlights this week’s data agenda, with unemployment and wage data in focus at the BoE at the moment. Other data include monthly government borrowing figures and more monthly house price numbers. The data will likely reaffirm Gilt’s underperforming bias against Bunds, even though this trend has been somewhat inhibited in the wake of remarks from BoE Governor Carney, who last Thursday warned of the risk that the combination of persistently low global inflation and the strength of sterling could weigh on prices here for some time. The underperformance of the yield instrumented is directly reflected in the EUR/GBP currency pair.

The BoE MPC minutes from the early March policy will also be a highlight on Wednesday. They will show that the central bank isn’t in any immediate rush to tighten policy. The minutes will show that the MPC continues to downplay deflation risks despite the drop in February CPI to 0.3% year over year. Markets are anticipating a first repo rate hike to come between August and Q1 next year, with conviction for this stronger at the farther end of this period, especially in the wake of Carney’s remarks on sterling.

As for the labor market report, the headline February claimant count should fall by 33.0k, with both the claimant count and the January unemployment rates seen making new cycle lows at 2.4% and 5.6%, respectively. Such an outcome in the jobless rate will bring us to within a whisker of the BoE’s 5.5% inflation-risk threshold into scope, the point at which the central bank estimates would start to trigger inflationary pressures via higher wage demands.

Average household weekly earnings will be scrutinized in this regard, and we expect new cycle highs of 2.2% in the including-bonus figure and 1.8% in the ex-bonus figure. The BoE has said that it is expecting strong rises in real income growth.

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