Because of the US dollar’s ongoing strength, the GBP/USD’s initial gains post UK’s jobs data evaporated fairly quickly. However, against today’s weaker currencies like the Japanese yen, New Zealand dollar and Swiss franc, sterling was still higher at the time of this writing. According to the ONS, average hourly earnings, excluding bonuses, stood at 2.1% in the three months to August compared to a year-ago period. It was down from a slightly upwardly revised 2.2% previously. But taking into account the revision, one could argue that wages still beat forecasts, as analysts were expecting a headline print of 2.1% anyway. Meanwhile including bonuses, earnings were unchanged after the previous month’s figure was also revised higher to 2.2%; this also beat expectations. But with CPI inflation rising to 3.0%, it means real wages are still falling. The good news is that the UK unemployment rate has remained at 4.3%, its lowest level since 1975. Low unemployment typically leads to rising wages over time, but after a lag.
Had it not been for ongoing Brexit uncertainty, sterling’s gains would surely have been more profound with inflation being at 3% and nominal wages also rising slightly. The Bank of England would have been more than willing to hike interest rates aggressively so that inflation did not get overcooked. While the Bank may still raise interest rates this year, it would be done so reluctantly. The BoE would not want to choke off economic growth at these uncertain times. Yet, equally, it would have to be confident that the recent rise in inflation is indeed temporary. There is a fine balance which the BoE better get right or risk losing its credibility.
As mentioned, the GBP/JPY was still higher at the time of this writing. With Japan’s general election due to take place on Sunday 22nd October, the yen is unlikely to make big moves until that’s out of the way. Still, from a bullish point of view it is encouraging to see price holding above long support in the 146.75-147.75 range, which was previously resistance. However at this stage we don’t have a clear confirmation that the GBP/JPY wants to go higher. That confirmation may come in the form of a break in market structure by price moving north of the most recent high around the 149.05-149.25 area. Any clean move above here then we would be looking for dips to be supported into this zone. For the bears, a clean break below the aforementioned 146.75-147.75 is still required before one can conclude that the recent pullback is more than just a short-term correction. But with price holding above both its 50- and 200-day moving averages, which also point higher, the trend remains objectively bullish for now.
Source: eSignal and FOREX.com.