GBP/USD – Pound rebounds as wage growth remains high, CPI expected to dip

• UK unemployment claims rise
• UK wage growth higher than expected
• UK Inflation is expected to fall below 10%

In the North American session, GBP/USD is trading at 1.2419, up 0.34%

UK employment report a mix

The UK employment report for March was a mixed bag. The number of unemployed persons jumped by 28,200, after a decline of 18,000 in February and higher than the estimate of -11,800. The unemployment rate nudged higher from 3.7% to 3.8%. These numbers, which point to a slight weakening in the labour market, were overshadowed by a jump in wage growth. Average earnings excluding bonuses hit 6.6% y/y in the three months through February, versus the revised upwards January read of 6.6% and the estimate of 6.2%.

Wage growth remains stubbornly high, despite the Bank of England’s steep tightening and that has to be a key concern for Bailey & Company. As wages continue to accelerate, the concern of a wages/price spiral remains very real and supports another rate hike at the May meeting.

Inflation rose in February to 10.4%, up from 10.1%, and Wednesday’s inflation report will be a crucial report card for the BoE. If inflation doesn’t fall below 10% (the forecast stands at 9.8%), it’s hard to see how the BoE can ease up on its relentless rate hikes. The wage growth numbers were enough for Goldman Sachs to upwardly revise its rate expectations for May from a hold to a 25 basis-point hike.

The UK’s uncertain economic landscape has become cloudier as hundreds of thousands of public sector workers are striking or planning to strike due to wage concerns. Workers have seen their real income fall as inflation has been at double-digit levels. The government has called for wage restraint in its battle to curb inflation, but strikers won’t be in the mood to compromise as long as wages fail to keep pace with inflation.

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GBP/USD Technical

• GBP/USD tested resistance at 1.2436 earlier in the day. The next resistance line is 1.2526
• There is support at 1.2325 and 1.2235

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