Sterling was hampered by further suggestions from Bank of England members that interest rates could be cut.

US employment data was below consensus forecasts with a slowdown in wages growth, reinforcing expectations of no Fed rate hikes.

The dollar lost some traction following the data with a retreat from 2-year highs. Risk appetite held firm ahead of this week’s scheduled US-China trade signing with global equities making net gains on Monday.

Commodity currencies were underpinned by a weaker US dollar as well as solid risk conditions. Stronger than expected jobs data supported the Canadian dollar.

Sterling was hampered by further suggestions from Bank of England members that interest rates could be cut.

December non-farm payrolls increased 145,000 compared with consensus forecasts of 165,000 and there was a small downward revision for November to 256,000 from the 266,000 reported previously. There was a dip in manufacturing jobs for the month and transport jobs also declined, but there was a strong increase in retail jobs which may be reversed next month. Unemployment held at 3.5%, in line with expectations, as the participation rate was also static. Average hourly earnings increased 0.1% compared with expectations of 0.3% which cut annual growth significantly to 2.9% from 3.1%.

The data reinforced expectations that the Federal Reserve could keep interest rates on hold for an extended period, especially as the slowdown in wages growth will tend to dampen potential inflation pressures. With evidence that the Fed will tolerate a very tight labour market as long as inflation remained subdued, the data reinforced expectations that a rate hike was unlikely. EUR/USD consolidated around 1.1120 as the US currency drifted lower.

Bank of England Monetary Policy Committee (MPC) Tenreyo stated that the UK labour market was very tight, although recent evidence suggested that it was not getting any tighter. She also commented that risks were tilted to the downside and her inclination was towards backing a rate cut if downside risks emerge. Sterling edged lower after the comments, although volatility eased.

GBP/EUR consolidated around 1.1750 while there was GBP/USD selling interest below 1.3100. CFTC data recorded a further net increase in long Sterling positions to above 16,000 contracts, the largest net long since May 2018. The long positioning will reinforce expectations that positive fundamentals will be needed to trigger Sterling gains.

Over the weekend, MPC member Vlieghe stated that he is ready to cut interest rates if data does not improve, although it wouldn’t take much data to swing the decision one way or another. Surveys of business confidence will be very important in the short term. A quarterly financial-sector survey recorded the first gain for 4 years, but Irish Foreign Minister Coveney stated that the EU would not be rushed on trade talks. GBP/USD dipped to 1.3020 on Monday with GBP/EUR near 1.1750.

Economic Calendar

09:30GBP Total Business Investment (Q/Q)0.50%-0.40%
09:30GBP Industrial Production (Y/Y)(NOV, 2019)-1.40%-1.30%
09:30GBP Industrial Production (M/M)(NOV, 2019)0.20%0.10%
09:30GBP Manufacturing Production (Y/Y)(NOV, 2019)-1.60%-1.20%
09:30GBP Manufacturing Production (M/M)(NOV, 2019)-0.10%0.20%
09:30GBP Trade Balance Non EU(NOV, 2019)-3.50B-5.73B
09:30GBP Trade Balance(NOV, 2019)-11.65B-14.49B
19:00Monthly Budget Statement(DEC, 2019)-196.5B-209.0B
21:45NZD Building Permits (M/M)(NOV, 2019)--1.10%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.