LONDON (Reuters) -The pound strengthened against the euro for the fourth session in a row on Tuesday after British labour market data which analysts said would not affect the Bank of England’s cautious stance on interest rate cuts due to high inflation.
The euro was last down 0.24% on the pound at 86.24 pence, its lowest since late July.
The pair have been more volatile this year than last, when the euro and pound traded largely in lockstep, as the Bank of England and European Central Bank have been cutting interest rates at different speeds.
The British currency also strengthened against the dollar, gaining 0.28% to $1.3469, though that may change after U.S. inflation data at 1230 GMT which will shape expectations of Federal Reserve policy.
The domestic news of the day for the pound was data showing Britain’s jobs market weakened in July but less sharply than in previous months. Wage growth, meanwhile, stayed strong in the three months to June, other data showed, underscoring why the Bank of England is so cautious about cutting interest rates.
“In any other (developed market) economy, a print as seen today would likely cause alarm bells around the state of the labour market. In the UK, however, this print is, per the initial market reaction, seen as relatively robust,” analysts at Morgan Stanley wrote.
“The difference, of course, is the central bank’s reaction function. The BoE … seems firmly focused on inflation and spot pay data.”
The BoE cut rates by 25 basis points last week as expected, but only by the narrowest margin – four of the nine rate setters voted to keep rates on hold due to concerns about elevated inflation, partly due to wage growth.
Markets now only see around a 50% chance of a further rate cut this year.
(Reporting by Alun John; Editing by Hugh Lawson)
