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GBP Well Placed to Climb Further After Strong UK Employment Report

GBP Well Placed to Climb Further After Strong UK Employment Report

Martin Essex, MSTA, Analyst

GBPUSD talking points:

- The strong upward trend in GBP/USD looks set to continue after robust UK labour market figures.

- The Bank of England remains unlikely to increase UK interest rates tomorrow but a hike in May is now even more probable.

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GBPUSD trending higher

GBPUSD rose strongly after the latest UK employment report and looks set to extend its gains as its upward trend remains intact. Similarly, the downward trend in EURGBP remains in place, as does the upward trend in GBPJPY.

In the immediate aftermath of the data, GBPUSD rose and then stabilised well above the psychologically-important 1.40 mark.

GBPUSD Price Chart, Five-Minute Timeframe (March 21, 2018)

Latest GBPUSD short-term chart showing the Pound rising

Chart by IG

Firm UK labour market

Looking at the data in detail, UK employment jumped by 168,000 in January, double the expected increase of 84,000 and well above the 88,000 rise recorded the month before. The unemployment rate slipped to 4.3% from 4.4% and average weekly earnings were up 2.8% rather than the predicted 2.6%; the previous figure was revised upwards too, from 2.5% to 2.7%.

That compares with an inflation rate of 2.7% reported yesterday, down from 3.0%, and suggests that real wages (adjusted for inflation) are now rising. This has given a further boost to GBPUSD, which is extending its advance and is now not far from the highs touched earlier this year.

GBPUSD Price Chart, Daily Timeframe (December 18, 2016 to March 21, 2018)

Latest GBPUSD long-term chart showing the Pound rising.

Chart by IG

Bank of England in focus

The data are unlikely to change the Bank of England’s interest rate decision tomorrow: it is still expected to leave the benchmark Bank Rate at 0.5%. However, the figures do make a rate rise in May even more likely and traders should be alert to any hawkish comments from the central bank.

If the BoE does point to tighter monetary policy ahead, GBP should strengthen even further, with the added bonus that a firmer Pound will put more downward pressure on UK consumer prices.

Brexit concerns easing

In addition, the latest agreement between the EU and the UK on a “transition period” before the UK finally leaves the bloc has boosted confidence in the Pound and any further signs of progress in the talks should help it higher too.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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