The Pound has bounced back this morning following better than expected employment data and improved risk sentiment.

Data showed the UK unemployment rate dropping to 3.7% versus an expected (and previous) 3.8%. Furthermore, there were less people than expected claiming jobless benefits (-56.9K vs expected -38.8K) and average earnings data showed an increase from previous data sets. Together these figures indicate the UK jobs market is still holding up well despite the Bank of England’s fears of upcoming economic growth issues, which has increased the demand for the Pound this morning.

Sterling has also been supported by an increase in risk appetite with stock markets making good ground back and safe-haven currencies (such as the USD) being sold. After all the deleveraging over the past month, it seems the markets are letting off a bit of steam with some risk flows returning. The trigger for today’s change in risk sentiment appears to be an announcement from Shanghai that no new covid infections were found across the region and that their lockdown measures will be removed by the end of the month, which is positive for global trade/inflation.

As a result, the GBP/USD is up around 2.5 cents from yesterday’s low and now trades at a 12-day high. The GBP/EUR has gained 1-cent this morning and is up around 3-cents from last week’s low and close to a 2-week high.

Market risk sentiment is likely to be the dominant driver of the rates but there’s also some key data releases still to come this week. We have US retail sales figures this afternoon, UK inflation figures (CPI) tomorrow morning (expected 9.1%) and then UK retail sales on Friday morning.