How could UK Employment figures tomorrow affect Sterling?

Pound/Euro rates remain firm at around €1.14 level, and Pound/Dollar rates were above $1.40 earlier, the highest since the referendum, but have slipped back ever so slightly this afternoon into the $1.39's. Decent growth forecasts for the UK on Monday from the IMF have helped the Pound, along with a general increase in optimism about how the UK economy is performing.

Tomorrow will be quite important for Sterling, and some key data due to be released at 09:30am could send the Pound higher still should it beat forecasts. Of course a poor reading could mean Sterling dropping back away from it's multi-month highs against many currencies.

How could UK Employment figures affect the Pound?

At 09:30am we will see the latest UK employment picture including the unemployment rate, which is expected to be 4.3%, the lowest since the 1970's. Of more importance will be the latest wage-growth data. This is expected to show that pay has risen on average by 2.3%. If the reading matches or exceeds this expectation, then it's more likely the Bank of England will have to raise interest rates to combat rising inflation. To date they have been reluctant to do so, due to the fact that inflation had been rising faster than wages, meaning real incomes were being squeezed. If these numbers come closer together, then the Pound could rise further. This is because the chance of higher interest rates increase demand for a currency due to the potential higher return, and this demand pushes up it's value.

Of course the opposite also holds true; if wage growth is lower than 2.3% then the Pound is likely to fall. We also have EU inflation numbers due tomorrow morning, which could also impact future EU interest rate movements and the value of the Euro also.

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