The British Pound jumped 0.25% against the Dollar and 0.33% against the Euro due to the latest employment data. While some key metrics of the report exceeded market expectations, the overall negative trend remains a cause for concern. In the three months to June, the unemployment rate fell to 4.2%, a decrease from the previous 4.4% and better than the anticipated rise to 4.5%.
Although this figure is still higher than the 3.6% low recorded two years ago, markets have reacted positively to the apparent improvement. Wage growth, excluding bonuses, also surpassed expectations, rising by 5.4% year-on-year, a considerable jump from the anticipated 4.6%. However, the broader picture suggests market optimism may be premature.
The claimant count rose by 135,000 in July, marking one of the highest monthly increases outside of the pandemic and the 2009 financial crisis. Total earnings, which include bonuses, increased by 4.5% over the same three-month period, marking the slowest growth rate since late 2021. This slowdown is likely to exert pressure on consumer spending more significantly than changes in bonus payouts.
From a technical analysis perspective, GBP/USD has maintained a position above the 200-day moving average at 1.2650 but has struggled to break past the 50-day moving average at 1.2780.
British labor market surprises
A key resistance level remains at 1.2850, corresponding to the 200-week moving average that has served as a barrier for the past 13 months.
With the latest macroeconomic data, momentum appears to favor sellers. Britain’s economy created more jobs than expected in the three months to June, delivering a surprise drop in the unemployment rate from 4.4% to 4.2%, well below the consensus forecast of 4.5%. However, wages rose at the slowest pace in almost two years, cooling from 5.8% to 5.4%, the latest sign of a cooling labour market.
While the jobs figures have been distorted by problems with the labour market survey, the news on wages was very much in line with what officials would want to see, though rate expectations remain unmoved. Meanwhile, in the FX space, CFTC data shows that although they are still near multi-year highs, GBP longs were reduced by the most this year last week, having peaked three weeks back. Sterling remains in a vulnerable position for bulls to further trim bets amid a slew of important data which includes inflation and preliminary GDP data.
Inflation data is forecast to show consumer prices rose 2.3% in July from a year earlier after having converged to target in June. However, core and services inflation, which are more closely watched, are expected to soften. Hence, overnight indexed swaps in the UK have been inclined to price nearly two rate cuts in the remainder of the year from the Bank of England.
