UK gilts slump following better-than-expected January employment report; BoE’s policy decision in focus

The UK gilts slumped Wednesday following better-than-expected employment rate for the month of January. Investors now shall be focussing on the Bank of England’s (BoE) monetary policy decision, scheduled to be released on March 22 by 09:30GMT for added direction in the debt market.

In lieu of this, market participants have also largely shrugged-off the UK’s lower-than-expected February consumer price inflation, leading to a fall in debt prices.

The yield on the benchmark 10-year gilts, jumped 4-1/2 basis points to 1.52 percent, the super-long 30-year bond yields climbed 3-1/2 basis points to 1.82 percent and the yield on the short-term 2-year traded 5 basis points higher at 0.93 percent by 10:00GMT.

Signs of accelerating pay growth raise the prospect of interest rates being hiked again in May. Data from the Office for National Statistics showed underlying pay growth (excluding bonuses) rising at an annual rate of 2.6 percent in the three months to January, the highest rate since November 2016. Total pay, including bonuses, was up 2.8 percent on a year ago, which is the fastest increase since September 2015 and takes pay growth above inflation for the first time in nine months.

Rising pay is high on the Bank of England’s checklist in terms of requirements for higher interest rates, alongside above-target inflation, steady economic growth and reduced Brexit uncertainty. With inflation at 2.7 percent, the economy showing resilient growth in the first quarter, according to survey data, and the Brexit transition deal adding some certainty to business conditions over the next two years, the upturn in pay growth opens the door for policymakers keen to get some interest rates hikes under their belts.

Meanwhile, the FTSE 100 traded 0.63 percent lower at 7,014.50 by 10:15 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bullish at 152.33 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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