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UK Earnings Data May Accelerate Slide in British Pound

UK Earnings Data May Accelerate Slide in British Pound

Martin Essex, MSTA, Analyst

Talking Points

- UK data due at 0830 GMT today are expected to show earnings continuing to increase at less than the rate of inflation.

- That could lead to weaker economic growth as consumers buy less, reducing the need for tighter monetary policy and keeping the British Pound under downward pressure.

Check out our GBP Trading Guide: it’s free and has been updated for the third quarter of 2017

Official data to be released at 0830 GMT today are expected to show that earnings continue to increase at less than the rate of inflation in the UK, potentially reducing consumer spending and the overall growth of the economy in the third quarter. That would ease the pressure on the Bank of England to tighten monetary policy and likely keep the British Pound on its current path downwards.

As the chart below shows, the Pound has been sliding against the US Dollar, as well as many other currencies, throughout August. That downtrend gathered pace yesterday as official data showed that headline inflation remained at 2.6% year/year in July rather than increasing to 2.7% as economists had expected. The core rate also stayed where it was, at 2.4%, instead of rising as predicted. You can read our report on the UK inflation figures here.

Chart: GBPUSD One-Hour Timeframe (August 2017)

UK Earnings Data May Accelerate Slide in British Pound

Chart by IG

This session, official figures to be released at 0830 GMT are expected to show that average weekly earnings rose by a same-again 1.8%, below the 2.6% inflation rate and therefore reducing consumers’ spending power. So, despite pressure on the Bank of England’s monetary policy committee to tighten UK monetary conditions as inflation remains well above its 2.0% target, the central bank is likely to hold off for many more months for fear of slowing the economy still more.

Meanwhile, separate figures are expected to show that the UK unemployment rate remained at 4.5% while employment rose by 97,000, down from the previous 175,000 increase. The DailyFX European team discussed this and other issues yesterday in our regular roundtable. If you missed it you can listen to it here.

From a technical perspective, GBPUSD should have some support at the 1.2810 low touched on July 12 and the 14-day relative strength index is currently close to – but not yet in – oversold territory. As for sentiment, the latest IG Client Sentiment data show that traders are netlong, suggesting GBPUSD may continue to fall. Traders are further netlong than Monday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

If you’re free you can listen in here to my live webinar at 0815 GMT analyzing the earnings and employment figures before and after they’re released. A full list of the numbers expected is on the DailyFX economic calendar.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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