GBP/USD – Pound Shows Gain Despite Lukewarm UK Job Numbers

GBP/USD has posted slight losses in the Wednesday session. In North American trade, the pair is trading at 1.2880. On the release front, British employment numbers weakened. Average Earnings Index softened to 1.8%, matching the forecast. Claimant Count Change came in at 6.0 thousand, lower than the estimate of 10.5 thousand. In the US, Janet Yellen testifies before the House Financial Services Committee. On Thursday, the US releases PPI and unemployment claims. As well, Janet Yellen will testify before the Senate Banking Committee.

Is Brexit taking a bite out of the British economy? Last week’s PMIs raised concerns, as the gauges of the services, manufacturing and construction sectors all pointed to weaker growth in June. Wednesday’s employment numbers were not all that bad, but nevertheless were not as strong as the previous reading. Wage growth dipped to 1.8% in May, compared to 2.1% a month earlier. This marked the first reading below the 2.0% level since February 2016. Unemployment rolls expanded by 6.0 thousand, better than the forecast of 10.5 thousand. Despite softer wage growth, inflation climbed to 2.9%, its highest level in almost 4 years. This has put pressure on the BoE to increase rates, with policymakers at odds over whether to raise rates before the end of the year.

A major consequence of Brexit will be the loss of financial jobs, which will relocate from London to the continent. Frankfurt is the expected destination for many companies which will be downsizing their presence in London, but France is eager for a piece of the pie as well. The new French government wants to project a “finance-friendly” image, and on Tuesday, Prime Minister Edouard Philippe told a banking conference in Paris that he wants the city to become Europe’s main financial hub after Brexit. Philippe’s comments underscore that France is looking for a bigger role on the international stage, and Brexit is a unique economic and political opportunity for Philippe and President Emmanuel Macron.

All eyes are on Janet Yellen, who testifies before a congressional committee on Wednesday. Yellen’s prepared remarks were released ahead of her testimony, and there were no surprises. Yellen said that the Fed is on track to raise rates and begin reducing its balance sheet before the end of the year. The markets are skeptical about another rate hike, despite the Fed optimism. This is largely due to weak inflation numbers. Although the labor market remains close to capacity, this has not translated into stronger wage growth, a key driver of inflation. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017.

GBP/USD Fundamentals

Wednesday (July 12)

• 4:30 British Average Earnings Index. Estimate 1.8%. Actual 1.8%
• 4:30 British Claimant Count Change. Estimate 10.5K. Actual 6.0K
• 4:30 British Unemployment Rate. Estimate 4.6%. Actual 4.5%
• 10:00 US Fed Chair Janet Yellen Testifies
• 10:30 US Crude Oil Inventories. Estimate -3.2M. Actual -7.6M
• 13:01 US 10-y Bond Auction
• 14:00 US Beige Book

Upcoming Key Events

Thursday (July 13)

• 8:30 US PPI. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 245K
• 10:00 US Federal Chair Janet Yellen Testifies

*All release times are EDT

*Key events are in bold

GBP/USD for Wednesday, July 12, 2017

GBP/USD July 12 at 11:15 EDT

Open: 1.2845 High: 1.2927 Low: 1.2812 Close: 1.2880

GBP/USD Technical

• GBP/USD showed little movement in the Asian session. In the European session, the pair posted losses but recovered and posted further gains. The pair has edged higher in North American trade
• 1.2865 has switched to a support role. It is a weak line
• 1.2946 is the next resistance line

Further levels in both directions:

• Below: 1.2865, 1.2706, 1.2571 and 1.2401
• Above: 1.2946, 1.3058 and 1.3121
• Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards long positions. Currently, short positions have a majority (57%), indicative of trader bias towards GBP/USD continuing to move lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.