I outlined some of the details earlier here as to why the report was a rather hawkish one. Essentially, it just bolsters confidence that labour market conditions are holding up despite the economic troubles.
There was a bit of a scare last month as payrolls declined in April for the first time since February 2021 but that has now been revised to show a growth instead. Sure, payrolls change is slowing down but it's not recession-like yet. Besides that, the jobless rate ticked lower and wages growth continues to run hot in the UK - at least from a nominal perspective.
In real terms, both total and regular pay are still sitting in negative territory and looking rather depressed as high inflation continues to take its toll:
However, just by going off the nominal figures, there will be increasing pressure for the BOE to tighten further next week and perhaps even more. A terminal rate of 5.50% is certainly looking rather plausible at this stage.
GBP/USD has driven higher as a result, moving from 1.2530 to a high of 1.2566 and is keeping near the highs currently. It isn't anything too outstanding though as the jump pretty much only halves the losses from yesterday for cable.
And given how markets have already priced in roughly 100 bps worth of rate hikes to come, this report doesn't really change that. In other words, the hawkish jobs report here only serves to validate the prevailing market sentiment - not add more to it. That might see pound gains be more limited if just reacting only to the above data.
For GBP/USD, there is bigger fish to fry from the US CPI data later today.
