Pound pinned near 2-week highs after UK jobs data leaves rate bets intact

By Ritvik Carvalho

LONDON (Reuters) - Sterling held near a two-week high against the dollar on Tuesday as UK jobs data came in largely in line with forecasts, keeping expectations for future rate rises from the Bank of England intact.

The pound hit a two-week high against the greenback on Monday on hawkish comments from BoE governor Andrew Bailey, who stressed the need to prevent inflation, and fellow policymaker Michael Saunders, who said households must brace for "significantly earlier" interest rate rises.

The BoE, which is gearing up to become the first major central bank to raise rates since the coronavirus crisis struck, is watching to see how many people became unemployed after the end of the country's pandemic furlough programme.

Data showed British employers expanded their payrolls to a record high in September, while the unemployment rate edged down to 4.5% in the three months to August, in line with economists' forecasts in a Reuters poll.

Money market pricing shows around an 8 basis point rate hike from the BoE priced in as early as the Bank's November meeting.

By 1510 GMT, sterling traded about flat against the dollar near the $1.36 mark and below Monday's peak of $1.3674 .

Against the euro, it was a touch higher, up 0.1% at 84.91 pence.

"There is nothing in this data to push back against the very early pricing of the BoE tightening cycle," said ING strategists Chris Turner and Francesco Pesole in a note to clients.

HEADWINDS

Positioning data from the CFTC on Friday showed the biggest weekly trimming of speculative positions in the pound in two years, with a shift from neutral to short positions on the currency. [CTFC/] [IMM/FX]

At the same time, respondents to an October market sentiment survey from Deutsche Bank said they expected the BoE to err on the hawkish side.

"Investors are clearly concerned about the impact on demand of a rate hike given the surge in energy prices and next April's hike in national insurance tax," said Jane Foley, head of FX strategy at Rabobank. "There are fears the combined headwinds could derail the recovery."

Investors are also monitoring tensions between Britain and the European Union over the Northern Irish protocol, which governs post-Brexit trade in the province.

On Tuesday, British Brexit minister David Frost repeated his call for the protocol to be changed, amid complaints of disruption in trade between Northern Ireland and the rest of the United Kingdom since it fully left the European Union.

Britain is hoping for two to three weeks of intensive talks with the EU over the protocol, Frost said.

Graphic: World FX rates in 2020 http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html

Graphic: Trade-weighted sterling since Brexit vote http://fingfx.thomsonreuters.com/gfx/rngs/BRITAIN-STERLING/0100310M299/index.html

(Reporting by Ritvik Carvalho; Editing by Kirsten Donovan and Gareth Jones)