GBP/USD: sticky situation for longs should UK wages growth undershoot
Sticky wages growth is one of the few positives for GBP/USD right now, keeping the prospect for rate hikes from the BOE in play.
Share this:
Sticky wages growth is one of the few positives for the British pound right now, keeping the Bank of England (BOE) sufficiently concerned enough to contemplate continuing hiking rates given the strong linkages with services inflation.
UK wages data key for near-term GBP/USD moves.
With an update on the wages front arriving later Tuesday with employment data for July, it’s an opportune time to look at recent wage trends, especially with GBP/USD sitting at an interesting juncture on the charts.
A month ago in June, the UK Office for National Statistics (ONS) reported wages ex bonuses soared 7.8% from a year earlier, the highest level ever reported dating back to when the series was first published in 2001. The increase exceeded the 7.4% increase expected and came despite a surprise rise in the UK unemployment rate to 4.2% as the employed labour force shrunk by 109,000 in the preceding three-month period.
Looking ahead to later today, momentum in wages is tipped to moderate with economists forecasting an increase of 7.6% over the year with unemployment ticking up by a further tenth to 4.3%. Adding to the importance of the data, markets will also receive speeches from BOE monetary policy committee (MPC) members Catherine Mann and Chief Economist Huw Pill, providing a real-time assessment that may alter the view from economists and markets that the BoE will hike its bank rate later this month to 5.5%.
Data weakness may prompt accelerated GBP/USD selloff
With financial markets putting the odds of another increase at around 80%, any new information that suggests wages growth and labour demand is cooling faster than anticipated could place the British pound under renewed selling pressure.
On the daily, GBP/USD remains comfortably in the downtrend it’s been in since July. However, sitting just above its 200-day simple moving average at 1.2430, and having bounced off a long-running support and resistance line at 1.2460, a downside break of this zone could lead to an acceleration of the current downtrend, paving the way for an eventual push back to 1.2300, the 50% retracement of the June 2021 to October 2022 high-low. RSI and MACD are also no impediment to the possibility of further downside.
If the UK data comes out stronger it could bring the top of the trend channel into play, especially if US dollar weakness seen on Monday extends into another session. If that eventuates, it may provide an opportunity to position for a trend change but let’s not get ahead of ourselves.
Source: Trading View
-- Written by David Scutt
Follow David on Twitter @scutty
Â
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customerÂ
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the market you want to trade in our award-winning platformÂ
- Choose your position and size, and your stop and limit levelsÂ
- Place the trade
Open an account in minutes
Experience award-winning platforms with fast and secure execution.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
EUR/USD Analysis: U.S. Inflation Data Keeps Pressure on the Euro
The trading week continues to unfold and the latest session has once again highlighted weakness around the euro against the U.S. dollar. EUR/USD is down nearly 0.3%, reflecting that the European currency continues to struggle to sustain a consistent recovery in the short term.
GBP/USD Forecast: BoE Caution Leaves the Pound Searching for Direction
Although GBP/USD has gained close to 0.5% over the last three trading sessions, reflecting a period of relative strength for the British pound, today's session has started to show a more neutral tone and the bullish momentum seen earlier in the week has begun to slow.
GBP/USD forecast: US Mid-terms, NFP and BoE put cable in sharp focus
The US dollar has been a standout loser in the FX space today. A Democrat-controlled Congress is widely seen as being at least mildly negative for the dollar, partly because of the potential implications for the AI investment story and partly because of the risk of another prolonged government funding standoff, potentially from next summer. This has allowed the likes of the GBP/USD to rally alongside gold and silver.
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.