The UK Jobs Report came in with mixed outcomes, mostly positive. However, the British Pound lost more than 50 pips in a matter of one minute.
Unemployment Ticked Lower
The Unemployment Rate came in better than expected, declining to 4.3% in July, while the estimates were to remain stable at 4.4%. This is the lowest reading since 1979. Moreover, this is the third monthly decline in unemployment rate in a row, one we have not seen since 2015.
Claimant Count Change Declines In August
The Claimant Count Change also came in with a surprise lower, which is another good news, declining by -2.8K in August after -2.9K in July, while it had been anticipated to rise by 0.6K. This is also the second monthly decline in a row, one we have not seen since January of this year.
Wages Growth
Both figures came in with a disappointment. The Average Earnings (Ex Bonuses) stabilized at 2.1% for the second month in a row, despite the fact that the estimates were to rise toward 2.3%. Yet it matches the highest reading of this year.
The Average Weekly Earnings for the month of July also stabilized at 2.1% for the second month in a row, while it had been anticipated to advance further toward 2.4%.
Why Do We Care?
The wages growth is one of the key factors that are correlated directly with inflation. Yesterday, the UK inflation came in surprisingly higher than expected, reaching the highest level since 2012.
With that said, estimates were also higher for wages, as higher wages should push inflation higher. But today’s figures showed the opposite.
This might be a sign that the increase in inflation last month might be temporary and/or a short term play.
In return, the estimates for a possible rate hike by the BOE has also eased, as if there is no wages pressure to the upside, this would give the Bank of England more time to assess the impact on inflation over the coming months.
Therefore, a rate hike possibility is still there, but weaker than yesterday after the inflation data announcement.
BOE Decision Is Still Important
Despite the stabilization in wages growth today, the Bank of England decision is still a major event to watch tomorrow, and as we said before, traders are advised to keep an eye on the rate votes.
In the previous meeting, there were two members voted in favor to raise the rate by 25bps, while if a third joins them tomorrow, this would push the investors to price in a rate hike in advance, whether this year or as early as next year.
GBPUSD Short Term Retracement in Play
GBPUSD reached one of the levels that we mentioned in yesterday’s article at 1.33 earlier this morning. However, it slides back to 1.3270’s right after the jobs report.
Does this mean that the uptrend is over? Not yet, the pair is still trading within a breakout formation as shown on the daily chart.
A short term retracement is possible ahead of the Bank of England tomorrow, possibly to retest the former resistance area, which switched to support at 1.3225, which should be watched closely, as if the pair manages to hold above that support, bulls might jump in one again.
Only a daily close below 1.3225 would change the short term view to slightly bearish. On the upside view, 1.3360’s might still be the next stop.
Edited by:
Nour Eldeen Al-Hammoury
Market Analyst
