The UK labor market is very tight which explains today’s reported increase in average weekly earnings which expanded by 3.0% annualized for the three-month period ending in September. Excluding bonuses, the increase was reported at 3.2% annualized. This marked the fastest expansion since December 2008. The unemployment rate was reported at 4.1%, up from the previous month’s 43-year low of 4.0%. While wages are expanding, output per working hour is lagging and only expanded by 0.1% in the third-quarter while hours worked rose by 1.0%.

Most traders did not have inflation on their radar for almost one decade or since the last global financial crisis. Central banks in developed countries have embarked on large economic stimulus packages know as quantitative easing, slashed interest rates to near 0% and printed money. That is a terrible combination for anyone watching for inflation and inflationary pressures.

Over the past two weeks forex traders received a handful of labor reports which have painted a tale of two different stories. All three reports moved their respective currencies, but one thing became obvious: most traders and economists were just wrong about their assessments and hopes.

The British Pound had a very volatile trading week which saw the British currency rally nicely, drop sharply and rally again today. Plenty of economic data was released during the week so far and forex traders have reacted to each individual report which is why the British Pound saw so much activity.

Last Friday forex traders received the non-farm payrolls reports or NFP report for November and the US Dollar launched a strong rally after the report. The NFP report showed that 321,000 jobs were added in November. This was far above expectations where the consensus called for the addition of 230,000 jobs. The unemployment rate remained unchanged at 5.8%.