GBPUSD Breaks Last Week’s Low After Fall in UK Unemployment Rate

GBPUSD peaked above 1.32 by the end of August and it retested those levels again last week, but it seems like the trend is turning bearish now, with the price making lower highs and lower lows. We saw a reversal after the US NFP jobs report, which showed that the US labour market is not deteriorating as much as feared, which has offered support to the USD, sending this pair 1.5 cents lower in two days.

In August, GBP/USD saw strong bullish momentum, gaining 6 cents. However, two weeks ago, the USD found support, leading to a 1.5-cent drop in GBP/USD. Last week, the pair managed to recover around 100 pips, driven by weak US JOLTS jobs data. Despite this, buyers struggled to push the price back to the late-August highs, and the pair dropped by approximately 1500 pips, signaling a potential shift in direction.

GBP/USD Chart H4 – The 50 SMA Turned Into Resistance

Yesterday, the pair broke below last week’s low, further reinforcing the bearish sentiment as sellers regained control ahead of the upcoming UK earnings and jobs report. So, despite attempts to recover, GBP/USD is under downward pressure, testing the 20-day Simple Moving Average (EMA) at $1.3180 yesterday.

UK Employment Report for July

• July ILO unemployment rate 4.1% vs 4.1% expected
• Prior 4.2%
• Employment change 265k vs 123k expected
• Prior 97k
• Average weekly earnings +4.0% vs +4.1% 3m/y expected
• Prior +4.5%; revised to +4.6%
• Average weekly earnings (ex bonus) +5.1% vs +5.1% 3m/expected
• Prior +5.4%
• August payrolls change -59k
• Prior 24k; revised to -6k

Here’s a breakdown of the situation:

1. Unemployment and Employment Changes:
   • The slight decrease in unemployment is overshadowed by the volatility in employment changes.
   • July’s employment initially exceeded forecasts, but a downward revision in the figure adds uncertainty.
   • August payroll decline further complicates the labor market picture, and the two months’ changes effectively cancel each other out.
2. ONS Data Disclaimer:
   • The Office for National Statistics (ONS) is adding disclaimers about the uncertainty in their employment data, making it harder for analysts and policymakers to rely on the figures with full confidence.
3. Wage Growth and BOE Outlook:
   • The wage front offers some relief for the Bank of England (BOE).
   • Wages have moderated compared to last year, with total and regular pay decreasing in real terms.
   • Total pay decreased to 1.1%, and regular pay dropped to 2.2% in the three months leading to July, slightly down from the previous quarter.
4. Inflation Adjustments:
   • Even though wage growth is still present, it is lower in real terms, meaning inflation is eroding the value of wage gains.
   • This could provide the BOE some flexibility in its policy decisions, as lower wage growth may alleviate inflationary pressures.

The uncertainty in employment data might complicate the BOE’s future monetary decisions, but the moderation in wages can be a positive sign in their battle against inflation.

GBP/USD Live Chart