06:56 AM EDT, 08/13/2024 (MT Newswires) -- Sterling (GBP) continues to recover lost ground at the start of the European trading session Tuesday following the release of the latest United Kingdom labor market report, said Mitsubishi UFG.

It has resulted in EUR/GBP dropping back below 0.8550 and cable rising back above the 1.2800 level, wrote the bank in a note to clients. Sterling is currently on course for a fifth consecutive day of gains against the US dollar which mainly reflects the ongoing improvement in financial market conditions.

The higher-yielding sterling was hit recently by the pick-up in financial market volatility, stated MUFG. Elevated long-sterling positions also made it vulnerable amidst the broad-based adjustment in positioning.

Sterling's rebound was reinforced Tuesday by the release of the latest UK labor market report which has prompted market participants to scale back near-term Bank of England rate cut expectations, according to MUFG.

The report revealed that payroll employees increased by an estimated 24,000 in July and by 252,000 over the past year. At the same time, the unemployment rate dropped by +0.1 point to 4.2% in Q2 as the number of unemployed fell by 51,000k.

While the report suggests that the labor isn't as weak as feared, there was further encouragement that wage growth is slowing, added the bank. Average regular earnings excluding bonuses slowed to 5.4% from April to June compared with the previous reading of 5.8%. Median pay growth is running at a similar pace.

The slowdown isn't sufficient to encourage expectations that the BoE will deliver back-to-back cuts in September, said MUFG.