GBP/USD calm after mixed UK jobs report, US retail sales

• UK wage growth, unemployment claims accelerate
• Fed members warn higher rates still on the table

After three straight days of sharp movement, the pound has settled down on Tuesday and is slightly lower, trading at 1.2496.

UK wages accelerate, unemployment rises

Is the UK labour market showing signs of strain? Today’s employment numbers are pointing in that direction. The unemployment rate rose to 3.9%, up from 3.8% which was also the estimate. Unemployment claims rose by 46,700, up from 26,500 and crushing the estimate of -10,800. At the same time, wage growth remains strong. Average Earnings excluding bonuses accelerated to 6.7%, up from 6.6% but shy of the 6.8% estimate.

The uptick in wage growth will no doubt concern the Bank of England since it complicates its battle to curb inflation, which is galloping at a 10.1% clip. If the BoE can get a handle on sizzling inflation and if the labour market continues to cool down, that should translate into lower wage growth. The British pound is slightly lower on expectations that the BoE may pause its tightening shortly – the markets have priced in just one more rate increase this year.

Federal Reserve members continue to send out a hawkish message to the markets, even though the Fed is expected to pause rates at the June meeting. Richmond Fed President Tom Barkin had a hawkish message for the markets on Monday, saying he saw “no barrier” to higher rates if high inflation persisted. Barkin said that demand was easing but not fast enough for inflation to fall to the 2% target. As for the job market, Barkin said it had moved from “red hot to hot” and there were some signs of the labour market easing. Atlanta Fed President Raphael Bostic poured cold water on rate cuts this year and warned that rates could go up, given the persistence of inflation pressures.

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GBP/USD Technical

• GBP/USD is testing support at 1.2524. The next support line is 1.2369
• 1.2604 and 1.2676 are the next resistance levels

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