During yesterday's trading, the British pound shyly rose against many other major currencies, after data from the Office for National Statistics (ONS) indicated the continuation of record growth in British wage packages during the month of June, but also confirmed what appeared to be emerging cracks in the labor market in general. In the case of the GBP/USD currency pair, it moved towards the 1.2752 level, before returning to stability around the support level of 1.2690 at the time of writing, where the bears are still stronger in control.
According to the official announcement, the National Statistics Office measures of average annual wage growth reached new highs for the month of June when including and excluding changes in annual bonuses. Although measures of unemployment, vacancies and inactivity in the British labor market indicate that employment and demand for workers is now declining. Total employment fell 0.1% in the three months through the end of June, with full-time and self-employed workers affected at the same time as the number of inactive people - those neither working nor looking for work - in a range of results that could explain the continuity of employment.
Britain's unemployment rate rose to 4.2% in the three months to the end of June, from 4% previously and from around 3.7% in January, as the "inactive" and previously unemployed sought new work in the labor market as vacancies were said to have fallen. They number from -66 thousand to an estimated 1.02 million.
The emerging trends illustrated in Tuesday's data suggest that Bank of England (BoE) interest rate policy is beginning to affect private sector businesses and the labor market, both of which are the backbone of the broader UK economy and public finances. Tuesday's estimate from the IRS indicated that the number of tied employees in the labor market rose by 97,000 for the month of July, suggesting some of the recent job losses could be reversed in the next report, but the ONS said the July payroll number "must be dealt with as a provisional estimate and likely to be revised when more data is received next month.” While analysts, economists and financial markets care more about the rates reported on Tuesday for average wage growth anyway.
Despite the apparent weakness in employment and the continued improvement in the supply of workers, the Bank of England will remain focused on wages. And when it comes to today's CPI numbers, we think there's room for a positive surprise on services inflation, but at the end of the day, the September rate hike still looks flat. Analysts, economists and central bankers generally cite wage growth as a prominent driver of inflation through its perceived influence on firms' pricing decisions, making it a key factor in interest rate predictions.
It follows the Bank of England's rate hike from 0.1% to 5.25% between December 2021 and August 2023 in response to rising inflation, making it one of the three most significant monetary tightening cycles the Bank of England has ever implemented. Moreover, when the change in the bank rate is compared to the pre-pandemic level, it leaves the UK with monetary policy settings that are much tighter than in most - perhaps all - advanced economies as well as some "emerging market" economies.
GBP/USD Technical Outlook
- According to the performance on the daily chart below, the price of the sterling currency pair against the US dollar, GBP/USD, still tends to its downward path and stability below the support 1.2700 confirms this.
- Forex investors rely on the data and events of the day for the possibility of changing the direction of the currency pair upwards or continuing downwards.
- This depends on the British inflation figures and the reaction from the announcement of the content of the minutes of the last meeting of the US Federal Reserve.
- Currently, the closest support levels for the GBP/USD are 1.2610 and 1.2500, respectively, which are sufficient to push the technical indicators towards strong oversold levels.
On the other hand, and for the same period of time, the bulls need to move towards the resistance levels 1.2850 and 1.3000, in order to change the direction of the currency pair's direction to the upside.
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