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GBP/USD Slips After Strong UK Employment Data

GBP/USD Slips After Strong UK Employment Data

Nick Cawley, Strategist

Talking Points

- UK labor market edges towards full capacity, with employment rate hitting a record high.

- Average wages miss expectations but inflation begins to bite.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

The number of people in employment in the UK increased by 37,000 in the three months to December 2016, pushing the unemployment rate down to its lowest level in more than a decade, official figures showed Wednesday.

According to the Office for National Statistics: “Consistent with ongoing employment gains, the unemployment rate remained at 4.8% in the three months to December 2016, its equal lowest level since the three months to September 2005. By duration, short-term unemployment as a share of the economically active remained at 2.8% in the quarter, its lowest since 1992, while long-term unemployment as a share of the economically active is approaching its pre-crisis average.”

And while the employment market will give the UK government, and Bank of England governor Mark Carney reasons to be cheerful, average wage growth missed expectations, a worry in times of ever increasing inflation. Average weekly earnings (3m y/y) grew by 2.6%, missing expectations of a 2.8% rise, while earnings, excluding bonuses, grew by 2.6% in the reported period, missing expectations of a 2.7% rise.

The continued strength of the UK labor market is yet another sign that Brexit worries over the strength of the UK economy were overblown. However, looking ahead, the government will need to be wary of the need for additional workers in the UK when it enacts Article 50 and takes back control of EU immigration. A lack of skilled or semi-skilled workers in the country, especially ahead of any fiscal policy boost, could cause a sharp rise in wages, adding to the inflationary pressures already building in the UK from a weaker currency.

Sterling slipped lower against both the EUR and the USD post-release, but losses remain limited and both pairs remain within their recent trading ranges. EURGBP dropped briefly through support at the 0.8460 level in Asian trade, before recovering, and looks likely to trade back towards December’s low around the 0.8300 area.

Chart: EURGBP One-Day Timeframe (December 2016 – February 2017)

GBP/USD Slips After Strong UK Employment Data

GBPUSD also remains trapped in a tight one-month range between 1.2250 and 1.2750 and will likeley need some major political news to knock it out of this range.

Chart: GBPUSD One-Day Timeframe (December 2016 – February 2017)

GBP/USD Slips After Strong UK Employment Data

Charts by IG

--- Written by Nick Cawley, Analyst

To contact Nick, email him at Nicholas.cawley@ig.com

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