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The Pound was treading water while caught in the glare of Brexit-shaped headlights on Tuesday, leading it to overlook a robust set of January labour market figures from the UK economy, which have led economists to speculate that another Bank of England (BoE) interest rate hike may not be far off.

Unemployment fell during the January month, pushing the jobless rate down by 10 basis points to 3.9%, its lowest level since the final quarter of 1974. This fall was in spite of a 27k increase in the number of welfare claimants during the month.

The UK economic inactivity rate, which measures the proportion of the working age population that is neither in work nor looking for work, hit a new record low during the January month when it fell to 20.7%.

Wages grew at an annualised pace of 3.4% during the three months to the end of January both when bonuses are included in pay settlements and when they are excluded from them. This is substantially higher than the 1.8% rate of inflation that prevailed that month.

"There was no sign in the labour market data of Brexit concerns at the start of the year as the data beat expectations in every regard," says Andrew Wishart, an economist at Capital Economics. "It is surprising that the labour market has remained so strong while economic growth has eased. Indeed, annual employment growth of 1.6% is above growth in the economy of 1.4%."

Markets care about the data because of the impact wage growth has on inflation and expectations for price pressures further down the line. It's inflation that central banks are attempting to manipulate when they tinker with interest rates.

Changes in rates are normally only made in response to movements in inflation but impact currencies because of the push and pull influence they have on capital flows, as well as their allure for short-term speculators.

Rising interest rates tend to be positive for a currency because they enhance the relative returns earned by investors in the bond market, which serves to attract increased flows of capital from international markets.

"The further tightening of the labour market in January adds to the list of recent official data supporting the case for the MPC to raise Bank Rate again as soon as Brexit uncertainty has diminished," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. "We continue to think that the MPC will raise Bank Rate again before the end of this year; the one-in-three chance of a 2019 hike priced-in by markets looks far too low."

The Pound was quoted 0.05% higher at 1.3240 against the Dollar Tuesday, while the Pound-to-Euro rate was -0.08% lower at 1.1691. Both exchange rates have risen sharply this year, by 3.9% and 4.9% respectively.

Sterling was largely unmoved by Tuesday's employment data as the British currency is firmly in the grip of speculators who are keen to see a resolution to the Brexit saga playing out in parliament. The final outcome of the process will have binary implications for the Pound.

The Bank of England has raised its interest rate by 25 basis points on two occasions since the referendum in 2016, taking the Bank Rate up to 0.75%, it highest level since before the global financial crisis.

BoE officials have said repeatedly in recent months that elevated inflation and a robust outlook for consumer price pressures mean it'll need to keep raising rates in the coming quarters.

However, the rub for the BoE is comes from Brexit, which is a risk to the economy that could potentially undermine the outlook for inflation by reducing demand further down the line. As a result, policymakers have said they're reluctant to make any changes to rates before they know exactly how the Brexit saga will end.

The consumer price index fell to 1.8% in January, from 2.1% previously, when economists had looked for a decline to only 1.9%. However, the move was in line with the BoE forecast for that month.

Core inflation, which is seen as a truer representation of domestic price pressures because it removes volatile energy and food items from the goods basket, remained at 1.9% for a second consecutive month.

The core measure is now in the process of reversing its 2018 decline to 1.8% and the Bank of England has said repeatedly it expects the index to remain biased toward the upside for some time to come.

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