Market News

BY  Pedro Goncalves·Finance Reporter, Yahoo Finance UK

Pound (GBPUSD=X)

The pound retreated against the dollar, slipping 0.2% to $1.2972, after the release of UK labour market data for three months ending January.

UK pay growth was steady but remained above inflation ahead of the Bank of England's (BoE) latest interest rate decision.

UK average weekly earnings excluding bonuses rose 5.9% in the three months to January on an annual basis, according to data from the Office for National Statistics. That was unchanged from from the previous three months but continued to outstrip inflation, which rose to 3% in January.

Meanwhile, annual wage growth in real terms — adjusted for inflation — was up 2.2% from the previous year.

The ONS reported that 124,000 people reported they had been made redundant in November-January, or 4.2 in every thousand employees. This is up from 99,000 in August-October, and is the highest level since the November 2023-January 2024 quarter, when 133,000 people (or 4.6 in every thousand workers) were made redundant.

Read more: UK pay growth stays above inflation ahead of Bank of England interest rate decision

The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, turns sideways around 103.66 after the Federal Reserve’s monetary policy decision on Wednesday.

The rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Officials now see the US economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December.

Meanwhile, the pound was higher against the euro (GBPEUR=X) on Thursday morning, at €1.1932.

A stronger pound may seem like good news for Britons planning holidays abroad, offering more purchasing power to buy dollars or euros. However, the benefits of a higher currency value come with economic trade-offs. While travellers might enjoy better exchange rates, a stronger pound can make the UK economy less competitive on the global stage.

When the pound appreciates, British goods and services become more expensive for foreign buyers, leading to a slowdown in exports. This reduced demand for UK-made products can dampen growth in key sectors, while also discouraging foreign investment. Over time, these factors contribute to weaker economic performance, lower productivity gains, and, ultimately, a decline in living standards for many.