The pound rose to a new high in 2023 against the dollar and returned to above 1.17 against the euro after the release of data indicating that wages in the UK are close to peaking. The gains of the upward rebound for the GBP/USD currency pair reached the 1.2970 resistance level, its highest during 2023 trading, and the highest in 15 months. This is the closest test of the psychological resistance 1.3000, which confirms the bulls' control of the trend.
Overall, the ONS reported wage numbers that were higher than expected, but the high unemployment rate and the increase in claimants indicate that the labor market is finally beginning to "relax" suggesting that the Bank of England will not have to keep track of the economy interest rate hikes in the coming months. The BoE is particularly interested in employment and wages data as they are a major driver of domestic inflationary pressures and remain consistent with the need for a further increase: the average earnings index, excluding bonuses, rose 7.3% in May, above consensus expectations. 7.1%, and in line with 7.3% in April.
Average earnings with bonuses rose 6.9% in May, slightly above expectations of 6.8% and up from 6.7% in April. Both figures indicate that the UK will continue to see wage adjustments at very high levels that would be consistent with rising domestic inflationary pressures. But there are signs that wage pressures, a lagging indicator, will ease as employment growth slows and the “slump” begins to build up. The Office for National Statistics said the UK's unemployment rate rose to 4.0% in May, a surprising jump from 3.8% in April and market expectations of 3.8%.
The just-in-time claimant count showed those seeking benefits outside of work rose by 25.7K in June, ahead of the -8.6K expected and -22.5K in May. But employment still rose 102k in the three months to May, which fell short of the market's expected target of 125k and 250k announced in April. The rise in employment rates and the rise in the unemployment rate have led to an increase in the economic participation of previously inactive individuals, as the National Statistics Office confirmed that the rate of economic inactivity decreased by 0.4 percentage points from the quarter, to 20.8% in March to May 2023.
While inflationary pressures are still evident in the wage data, the market is almost certainly turning around, which should ease pressure on the Bank of England to raise interest rates to the level the market is currently expecting (by over 6.0%) which would lead to Ultimately to ease pressure on the Bank of England to raise interest rates. Reducing the chances of the UK economy entering recession. The pound's initial reaction was bullish, a potential sign that expectations for a rate hike from the BoE may be supportive as long as this reduces the chance of a severe recession below the line.
Forecast for the pound sterling against the US dollar today:
I have often mentioned the possibility of the price of the GBP/USD currency pair moving towards the psychological resistance level 1.3000 in the event that the bullish momentum continues and surpasses the resistance 1.2930. It is the closest to testing that peak, and it is sufficient to push the technical indicators towards overbought levels, according to the performance on the daily chart. below.
- The upward shift in the currency pair is still in progress, but if the US inflation figures came today stronger than expected.
- It will support the expectations of a US interest rate hike.
- It will also bring some profit-taking selling for the currency pair.
If the US inflation numbers come in below expectations, the GBP/USD pair may find the way beyond the 1.3000 resistance, and then it may be considered to conclude selling deals while not taking risks.
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