Pound drops as UK creates record number of jobs

graphic: world exchange rates in 2020 http://tmsnrt.rs/2egbfVh

Chart: Trade-Weighted Pound Since Brexit Vote http://tmsnrt.rs/2hwV9Hv

LONDON, January 18 (Reuters)The pound traded lower against the dollar on Tuesday after data showed British employers added a record number of employees in December, another sign that the economy’s rebound could potentially fuel a new inflation.

The 184,000 employees added to the UK payroll may justify traders who have forecast another interest rate hike from the Bank of England in February, but the fact that pay recorded its weakest performance since July 2020 could also reassure dovish policymakers.

Friday’s GDP data showed the economy is bigger than it was before the first COVID-19 lockdown and the unemployment rate for the three months to the end of November fell to 4.1 %.

Boosted by the fact that the BoE in December was the world’s first major central bank to raise interest rates since the coronavirus pandemic, the pound rebounded more than 4% from its lows in December, but fell lost ground in the last three sessions.

“Expectations go far enough already,” Commerzbank analyst You-Na Park-Heger wrote, adding that investors will be eagerly awaiting monetary policy hints when BoE Governor Andrew Bailey speaks. Wednesday before the special Treasury committee.

An accusation that British Prime Minister Boris Johnson lied to Parliament about a lockdown party by former senior adviser Dominic Cummings apparently had little impact on the pound.

It remains unclear at this point whether Johnson will be able to salvage his prime ministership from the so-called “partygate” scandal, but investors don’t believe the prime minister’s fate is a game-changer for the currency.

“Political developments surrounding Prime Minister Boris Johnson appear to be just an aside for the currency market, and that will likely remain the case for now,” Park-Heger said.

Against the US dollar, the pound GBP=D3 fell another 0.15% to $1.3622. It hit a late October high of $1.3749 last week.

The pound’s weakness against the greenback in morning trade comes as a jump in US Treasury yields pushed the dollar index to a six-day high.

The pound sterling loses 0.07% against the euro EURGBP=D3 at 83.62 cents.

(Report by Julien Ponthus, editing by Ed Osmond)

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Clifton L. Boyd