The British Pound returned to its recent gains against the Euro and the Dollar after the release of UK wages and employment figures which indicated that the British labor market is at a turning point.
Accordingly, the GBP/USD pair returned to the resistance level of 1.2546, before it was subjected to selling operations again. As a result it moved towards the support level of 1.2476, after stronger figures for US retail sales. It provided positive momentum for the US dollar against the rest of the other major currencies, along with a torrent of money. Statements by US monetary policy officials confirm the future of the bank's tightening until US inflation reaches the bank's target.
According to official figures average wages in the UK rose 6.7% in March, the Office for National Statistics said, which was weaker than the 6.8% figure the market was looking for, but still above 6.6% in April. When bonuses are included the figure was 5.8%, which was expected and unchanged from the previous month. As is well known, the Bank of England is particularly focused on wage numbers as it looks for indicators that inflationary expectations in the UK are now well established. While the numbers are strong, the Bank will notice a peak in wage increases, especially if the unemployment rate continues to rise.
Indeed, the UK unemployment rate unexpectedly rose to 3.9% in March, while an unchanged reading of 3.8% had been expected. The numbers may indicate that Britain's labor market is finally beginning to "relax", which could allow the Bank of England to consider ending the cycle of interest rate hikes.
Overall the UK labor market remains healthy and able to generate inflation, with 182k jobs created in the three months to March, which was more than the expected 160k and an increase of the 169k jobs created in the three months to April. The increase in jobs and the high unemployment rate indicate that more people are returning to the labor market after they were previously economically inactive.
Indeed, in an unquestionably positive development for the economy and public finances, the Office for National Statistics reported that “there was a record high net inflow of economic inactivity” between October to December 2022 and January to March 2023. The rise in employment also comes at a time when net Record levels of immigration, with the Office for National Statistics expected to reveal this week that net immigration in the UK was in the region of 1 million people last year.
The British pound rose during 2023 as British economic data came ahead of expectations and challenged market expectations about weak economic performance in the United Kingdom. However, the May labor market data represents a regression and may indicate that the data pulse in Britain is on its way to turning softer, a development expected to weigh on the pound.
The numbers will also give ammunition to those who argue that the Bank of England can now pause the cycle of rate hikes because the number of increases that have already been delivered has not yet been fully felt by the economy. If the Bank decides to keep interest rates unchanged in June, the British pound could come under pressure as British bond yields decline and investors start raising bets for a rate cut at the end of the year.
Sterling forecast against the dollar today:
- For four trading sessions in a row, it seems clear on the daily chart that there is a struggle between bears and bulls to control the direction of the GBP/USD.
- The move will be bullish and strong if the currency pair moves towards the resistance levels 1.2530 and 1.2660 again.
- The movement of the currency pair towards the support level 1.2330 will be important to change the direction of the pair to bearish.
- Today, the GBP/USD will be affected by the statements of the Governor of the Bank of England and the numbers of the US housing market. In addition, the performance of global financial markets and investor sentiment.
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