Sterling firms as focus moves to Angela Merkel and Theresa May

The pound climbed from a one-week low as a report showed the UK unemployment rate fell below 5% for the first time since 2005.

Sterling was further boosted by a Bank of England survey which showed that despite an increase in business uncertainty after the June 23 referendum, firms sought to maintain “business as usual”.

Sterling gained versus all of its 16 major peers as data showed the UK jobless rate, as measured by International Labour Organisation standards, dropped to 4.9% in the three months through May. Separate wage data showed average weekly earnings unexpectedly fell.

“It’s a double push really for the pound,” said Neil Jones at Mizuho Bank.

“We have got insight into the thinking of businesses and it looks like the hiring plans” are not expected to change “for the moment, so we can probably maintain some healthy levels of employment”, he said.

Sterling strengthened 0.5% to 83.61 pence against the euro. It also rose 0.3% to $1.3154 at one stage in London, after falling earlier to $1.3065, the lowest since July 12.

The Bank of England’s Agents’ summary of business conditions showed that while Brexit caught most UK firms by surprise, they did not expect to alter their investments and hiring plans in the near term.

While the outlook for the UK economy remained cloudy, the survey showed the central bank was yet to see evidence of a sharp slowdown.

“The reference to most firms not expecting the near-term impact to alter their investment or hiring plans” is significant, Mizuho’s Mr Jones said.

“This is the coal face and engine room of an economy. It matters a lot to us what they do,” he added.

The vote to leave the EU helped push the pound to a 31-year low against the the dollar earlier in July.

Sterling is the worst performer among major currencies this year. Thu Lan Nguyen, a currency strategist at Commerzbank in Frankfurt, cautioned that the market reaction to the UK labour data “may be a little overdone because these are data from May. So they do not include any Brexit vote sets yet.”

Traders’ focus had shifted to the meeting late yesterday between UK’s new prime minister Theresa May and German chancellor Angela Merkel, according to Eimear Dalyat Standard Chartered in London.

“Any kind of signs you would be able to have something in place before we officially exit the EU will be sterling-supportive,” Ms Daly said. Moves in the pound may also be dictated by post-Brexit data later this week.

Surveys tracking output among UK services and manufacturing industries, as measured by purchasing managers, which are due on Friday, “will be very, very important as this will be one of the first data points which will reflect the post-Brexit mood,” according to Petr Krpata, at ING.


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