GBP/USD rebounds on better than expected UK wages and jobs data
Fawad Razaqzada July 12, 2017 11:13 AM
The latest UK earnings data was released this morning and unfortunately nominal wages fell again which meant that real incomes declined further. However, the headline 1.8% reading, which was down from 2.1% previously, was bang in line with the expectations.
Over the past week and a half, market participants have been forced to reduce their Bank of England rate hike expectations due to the recent soft patch in UK economic data. Last week for example saw the UK economy suffer a hat-trick of weaker-than-expected PMIs while manufacturing production and construction output came in significantly weaker than expected. Investors must have wondered whether the Bank of England’s recent tilt towards the hawkish side was a bit premature. Given the renewed weakness in data, would they tolerate the rise in inflation by keeping rates on hold for longer? One of investors’ key concerns is the fall in real wages as the pace of inflation sharply exceeded that of nominal wages growth.
The latest UK earnings data was released this morning and unfortunately nominal wages fell again which meant that real incomes declined further. However, the headline 1.8% reading, which was down from 2.1% previously, was bang in line with the expectations. What’s more, earnings excluding bonuses actually rose to 2.0% in the three months to May from 1.8 per cent previously. On top of this, the unemployment rate dropped to a new 42-year low of 4.5% as employment rose by an above-forecast 175,000. Meanwhile jobless claims rose only by 6 thousand applications in June, lower than 10.5 thousand expected. This leading indicator of the jobs market bodes well for employment but says nothing about wages though.
Today's latest jobs and wages data was overall better than expected, which has alleviated some of the concerns about the falls in real wages. But the key question remains: will the Bank of England maintain its recent hawkish rhetoric? I think it will, and I therefore expect to see higher levels for the pound against some of her weaker rivals, including the US dollar.
In fact, the GBP/USD has already bounced off a key support level we highlighted in this week’s Live Trading Session webinar on Monday. The 1.2815 level was the last resistance prior to the breakout on June 28. Once resistance, this level has turned into support, at least for the time being anyway. At the time of this writing, the cable was testing last week’s low and resistance at 1.2865/70 area. Last week, the cable had created an inside bar pattern on its weekly chart following a large rally the week prior. These patterns typically trap traders before the trend resumes in the underlying direction (to give you an idea, see the EUR/GBP’s daily chart and price action since Monday). If this turns out to be an inside bar failure pattern then the GBP/USD could head towards and possibly beyond 1.3000 in due course – perhaps similar to how the EUR/USD cleared its own key level of 1.1300 at the end of June. All that being said however, I would drop my bullish view in the short-term if the cable closes the week below the 1.2815 support level.
Source: eSignal and FOREX.com.
Disclaimer: 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 and commodity futures, 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 GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.