GBP/USD steady ahead of UK employment data

The British pound has started the week quietly. GBP/USD is trading at 1.2718 in the North American session at the time of writing, down 0.03% on the day.

UK job growth expected to shrink

The UK releases the May employment report on Tuesday. UK job growth has been contracting for some time and the trend is expected to continue in May. Job growth is expected to fall by 100 thousand in the three months to April, after a decline of 178 thousand in the previous release.

The weaker labor market will make it easier for the Bank of England to start to lower rates, but wage growth remains high and that is feeding inflation. Wage growth is expected to creep up to 6.1% in the three months to April, up from 6% in the three months to March. Although the overall trend for wages has been down, it is still uncomfortably high for the BoE. The markets haven’t fully priced an initial rate cut until November, although a rate cut in either June or August are possible.

Friday’s US nonfarm payroll report indicated that the US labor market is in good shaped despite the heavy weight of high interest rates. Nonfarm payrolls in May rose to 272 thousand, blowing past the market estimate of 185,000 and much stronger than the revised gain of 165 thousand in April. Wage growth accelerated in May and was also higher than expected. Surprisingly, the unemployment rate crept up to 4%, up from 3.9% in April and above the market estimate of 3.9%.

The strong job numbers have helped cushion the impact on the economy of high rates and that has kept inflation stubbornly high. According the CME’s MarketWatch, the odds of a quarter-point cut in September have dropped to 46%, compared to 51% just one week ago. There is virtually no chance of a rate cut at this week’s meeting.

GBP/USD Technical

• GBP/USD tested 1.2688 in support earlier. Below, there is support at 1.2654
• 1.2750 and 1.2784 are the next resistance lines

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