GBP/USD slips below the 1.36 level but firm jobs data leans into Bank of England (BoE) tightening risk. Strategists at Scotiabank expect the cable to lurch higher towards 1.40 but a correction lower is probable by late-2022.
Strong payrolls data marginally boosted BoE rate hike expectations
“UK firms added 184K employees to their ranks in December with no noticeable impact from the Omicron wave. For 2021, total payrolls increased by roughly 1.35M employees and as of last month totaled about 1.5% over their pre-pandemic peak in February 2020.”
“A faster pace of hiking amid a strong jobs market and elevated inflation would continue to lift the GBP toward 1.40 but it does leave it at risk of correcting in late-2022.”
“As the BoE reaches its neutral rate (likely 1.25%) by the end of this year or early-2023, flows will likely shift more toward dollar-denominated fixed-income assets as the Fed’s hiking cycle continues in 2023.”
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