U.K jobless Fall is Not What GBP Shorts Wanted

• The Pound hits one month high after job numbers

• Tepid U.K wage growth should push rate hikes further out

• Dollar Bulls continue to readjust the Fed’s rate hike timing

• Global yields continue to fall

U.K’s Prime Minister David Cameron will be happy with this morning’s economic releases. Data released this morning shows that earnings for British workers continued to modestly rise in February (+1.7% y/y, +1.9% expected) amid falling employment (+5.6% vs. +5.7%). Despite the mixed headlines, the conservative spin-doctors will be applying their magic to give Cameron a boost for his reelection campaign. It’s now only three-weeks until the U.K electorate goes to the polls in a tightly fought general election. It will be up to the opposition the rip the reports apart and they will.

BoE rate hike not in sight

U.K Employment rose by +248k in the three-months to February. During that time the employment rate climbed to a new record high which has managed to push the unemployment rate down from +5.7% to +5.6%, its lowest level in seven-years. Analysts believe that the continued strength of the latest job surveys and the further -20.7k monthly fall in the claimant count last month would suggest that the U.K unemployment rate is likely to fall even lower over the coming months.

So, it is not a surprise that wage growth is gradually building. U.K workers are beginning to see their living standards recover, mostly due to the sharp drop in oil and food prices. Despite productivity starting to edge up, the rates of pay growth are probably still not strong enough to suggest that inflation will swiftly return to the BoE MPC’s +2% target. If that is the case, then the likelihood of an interest rate rise within the next year still looks like an outside bet. Hence the reason why fixed income traders continue to push a U.K rate rise further out their curve.

Pound Shorts Being Squeezed

Sterling is being dragged higher for a number of reasons (£1.5035), this morning’s data has obviously helped, there is risk aversion demand and the mighty USD is under performing across the board. The dollar continues to be pressured following a run of softer U.S economic data that has the market readjusting the probability of a Fed tightening as soon as June. Even the probability of September hike has been lowered this week. The softer economic data seems to be creating some uncertainty among the FOMC members about the timing of the liftoff in rates and reason enough for the dollar bulls to be back peddling at the moment. Obviously not helping the dollar’s cause is that U.S Treasury yields continue to fall.

As we head stateside, U.S debt remains better bid this morning. The combination of weak U.S data and the risk-off undertone in Europe is pushing global yields to test record lows. In Germany, out to eight-years, bunds are trading in negative territory. The main benchmark, the ten-year bund trades at +0.11% and it may not be long before investors are “paying away” to own this product as German government debt is considered to be some of the lowest risk globally. U.S ten’s are currently yielding +1.865%.

Inflation data will be the focus of attention in the U.S this morning. The headline is expected to nudge to +0.3% m/m from +0.2% with no change expected to the year-over-year reading. The core-print is expected to remain unchanged too at +1.7% y/y.