Why the pound is falling despite impressive wage growth
Fiona Cincotta July 16, 2019 12:13 PM
There was a lot to like in the report. Whilst unemployment remained steady at the multi-decade low of 3.8%, wages grew at the fastest pace since 2008. Basic pay increased 3.6% in the three months to May, comfortably outpacing inflation at 2% and employment levels hit a record high.
However, the main source of the pound’s pain this morning is from Brexit and the returning fear of a no deal. The pound slumped to 2019 low’s in reaction to both remaining candidates in the Conservative leadership race, Boris Johnson and Jeremy Hunt opposing the Irish backstop. This dramatically reduces the chances of a no deal Brexit. Both have recently hardened their rhetoric on Brexit. Negotiations will undoubtedly grow more hostile under the next prime minister.
Money markets are pricing in 50% chance of a BoE rate cut before the end of the year. This is owing to the growing risk of the UK crashing out of the EU without a deal. This could be interpreted as the markets now pricing in a 50/50 chance of a no deal Brexit.
Attention will now turn to BoE Governor Mark Carney scheduled speech. This could influence market expectations over central bank policy, potentially injecting volatility into the pound.
Strong US corporate earnings are lifting the dollar. US retail sales could also keep the dollar buoyed. After the surprisingly upbeat US NFP and tick higher in inflation, better than forecast retail sales wouldn’t be entirely surprising.
GBPUSD levels to watch:
GBP/USD is down 0.8% its third straight session of losses. The pair is down 1.3% across the week so far. The pair trades firmly below its 50, 100, 200 sma showing signs of strong bearish momentum.
Having broken through resistance at $1.2440, the pair is looking to teat $1.24. A breakthrough her could open the doors to $1.2370.
On the upside, the key resistance sits at $1.25. A breakthrough ere could open the door to $1.2575.
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.