Unemployment Drops

GBP is rallying today on the back of the latest set of UK labour market figures. The unemployment rate was seen falling to 3.8% from 3.9%, in contrast to expectations for a 4% reading. Similarly, the claimant count change was seen falling to -13.6k, down from 23.4k prior and in contrast to the 21.4k reading the market was looking for.

Wages Rise Again

However, there were some issues with the report which the BOE might find a little troubling. Wages were seen rising to 6.5% over the measured three-month period, up sharply from the prior and expected 6.1% reading the market was looking for. While inflation was seen cooling sharply last month, falling back down to single digits for the first time since late 2022, today’s wages data suggests that there is still plenty of upward pressure. A tighter labour market and stronger wages will no doubt keep market expectations geared towards a further hike from the BOE this month, which should keep GBP underpinned for now.

Bailey Due Later

Focus now shifts to BOE governor Bailey who is due to speak later today. Traders will be paying close attention to how Bailey addresses the risks around wage growth and his outlook on inflation and rates. If Bailey is seen suggesting the need to continue with rate hikes near-term this will no doubt drive GBP higher through the week particularly GBPUSD if the Fed presses ahead with an expected pause.

Technical Views

GBPUSD

The pair is once again testing the bull channel highs just ahead of the 1.2659 level. With momentum studies turned bullish, the focus is on a further push higher while price remains above 1.2437 putting the 1.2992 level in view as the longer run target for a breakout move.