UK Unemployment Rises, Steady Earnings, GBP/USD Declines

UK unemployment rises, earnings stable; GBP/USD falls. BoE faces challenges and an economic outlook. Market reaction and sentiment.

JOBS DATA (UK) KEY POINTS:

• The UK experienced a decrease in employment of 207,000 in June, surpassing the forecasted decline of 185,000.
• The unemployment rate in the UK for July remained at 4.3%, aligning with the predicted rate of 4.3%.
• Average earnings, including bonuses, showed an actual increase of 8.5% in July compared to the expected 8.2%.
• Adjusted for inflation, there was a 1.2% annual rise in total pay, while regular pay increased by 0.6% over the year.

UK Unemployment Rises, Steady Earnings, GBP/USD Declines

In the latest data release from the UK, the employment landscape presents challenges for the Bank of England (BoE). The UK’s employment rate stood at 75.5% in May to July 2023, down 0.5 percentage points from February to April 2023. This decline was primarily driven by a decrease in full-time self-employed workers.

Unemployment surged by 159,000, totaling 1.46 million, primarily among those jobless for up to 12 months, according to the UK ONS. August 2023 witnessed no net increase in pay-rolled employment compared to July 2023, as reported by the UK ONS.
Annual growth in regular pay stood at 7.8% from May to July 2023, the highest since 2001. Meanwhile, employees’ average total pay grew by 8.5%, influenced by NHS and Civil Service payments in June and July 2023. In real terms, total pay rose by 1.2% annually, and regular pay increased by 0.6%, adjusted for inflation using the Consumer Prices Index, including owner-occupier housing costs.

UK Economic Outlook Going Forward

Looking ahead, the UK’s GDP data offers optimism, but the Bank of England’s confidence in inflation receding in Q3 and Q4 of 2023 faces challenges, especially after comments from Chancellor Hunt suggested a more formidable economic landscape than expected.

While the UK economy has displayed resilience, today’s data adds complexity to the BoE’s efforts to control inflation, as unemployment rises and earnings remain robust, partly due to one-off payments in June and July 2023.

The Bank of England faces a challenging task; should earnings continue to accelerate, inflation may persist even if it initially retreats. Achieving the Central Bank’s target likely hinges on making progress on the earnings front.

Market Reaction

In response to the news, GBP/USD initially fluctuated by approximately 30 pips, briefly impacting the key support level around 1.2500. However, this proved to be short-lived.

GBP/USD closed above 1.2500 yesterday, following a bullish engulfing candlestick pattern on the daily timeframe, suggesting further upside potential. A move higher could focus on the resistance level around 1.2565 before potentially testing the 100-day moving average (MA). Favorable conditions may prevail as the US Dollar has had a lackluster start to the week. The upcoming US data could be decisive for GBP/USD’s ability to build on yesterday’s bullish momentum.

On the downside, breaking below the 1.2500 handle may encounter the 200-day MA around 1.2433, should a lower push gain traction.

Retail traders overwhelmingly hold long positions on GBP/USD, with 63% currently favoring long positions. Contrarian sentiment suggests that this might signal a potential continuation of Cable’s decline.

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