The British Pound surged by 0.25% against the Dollar and 0.33% against the Euro in light of the most recent employment statistics. Although several key indicators in the report were better than market predictions, the persistent overall decline continues to raise alarms. For the three months ending in June, the unemployment rate decreased to 4.2%, down from the earlier figure of 4.4% and significantly better than the expected rise to 4.5%.
Despite this figure still being above the low of 3.6% recorded two years prior, market reactions have been optimistic regarding the visible enhancement. Annual wage growth, not including bonuses, also exceeded expectations, climbing by 5.4%, a notable increase over the predicted 4.6%. Nevertheless, a broader evaluation indicates that the market’s positive sentiment may be overly optimistic.
The claimant count experienced an increase of 135,000 in July, representing one of the most significant monthly rises outside of the pandemic period and the financial crisis of 2009. Total earnings, including bonuses, rose by 4.5% over the same quarter, reflecting the slowest growth rate since late 2021. This deceleration may put more pressure on consumer spending than shifts in bonus distributions.
From a technical standpoint, GBP/USD has been able to hold its ground above the 200-day moving average situated at 1.2650 but has faced difficulties in surpassing the 50-day moving average at 1.2780.
Unexpected developments in the British labor market
A significant resistance level persists at 1.2850, aligning with the 200-week moving average that has acted as a barrier for the last 13 months.
Recent macroeconomic indicators indicate a tilt towards sellers. The UK’s economy added more jobs than anticipated in the three months leading to June, resulting in a surprising drop in the unemployment rate from 4.4% to 4.2%, falling well short of the consensus estimate of 4.5%. However, wage growth has slowed to its lowest rate in nearly two years, decreasing from 5.8% to 5.4%, another clear indication of a cooling labor market.
While the employment statistics have been affected by issues within the labor market survey, the wage news aligns well with what officials aim to see, yet expectations regarding rates remain unchanged. Additionally, in forex markets, CFTC data indicates that despite being close to multi-year peaks, GBP longs experienced their largest reduction of the year last week, following a peak three weeks ago. Sterling holds a precarious position as bulls are likely to scale back their positions with crucial upcoming data, such as inflation and preliminary GDP figures.
Forecasts for inflation data suggest a 2.3% rise in consumer prices for July compared to the previous year, following its alignment with targets in June. However, core and services inflation – typically observed more closely – are anticipated to decline. Consequently, overnight indexed swaps in the UK appear to predict nearly two interest rate cuts from the Bank of England for the remainder of the year.
