GBP/USD steady as UK wage growth eases, GDP next

The British pound has edged lower on Tuesday. In the North American session, GBP/USD is trading at 1.3055, down 0.14% on the day.

UK wage growth drops to 2-year low

UK wage growth eased in the three months to July, an encouraging sign for the Bank of England as it looks to continue lowering rates.

Average earnings excluding bonuses climbed 5.1% y/y, down from 5.4% in the previous period and in line with the market estimate. This was the lowest level since June 2022. Wage growth is moving in the right direction but is still much too high for the BoE’s liking as it is incompatible with the target of keeping inflation at 2%.

The UK labour market remains strong, as the unemployment rate edged down to 4.1%, down from 4%. The economy created 265 thousand jobs in the three months to July, up sharply from 97 thousand in the previous report and blowing past the market estimate of 115 thousand. The solid data means that the BoE isn’t under pressure to cut rates next week, and the markets are looking at another cut in November.

The UK economy gets a report card on Wednesday, with the release of GDP for July. The economy flatlined in June and rose just 0.6% in the three months to June. Another weak GDP release could put pressure on the British pound.

Investors will be keeping a close eye on Wednesday’s US inflation release. The Federal Reserve is now focused on employment now that inflation is between 2% and 3%, but a CPI surprise could shake up the markets and change market pricing for a Fed rate cut. The odds of a 50-basis point cut have been slashed to 29%, compared to 59% on Friday.

GBP/USD Technical

• There is resistance at 1.3167 and 1.3225
• 1.3069 and 1.3011 are providing support

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