Unemployment Rate Rises

The latest set of UK labour market readings, released today, was something of a mixed bag. On the one hand, wages were seen holding steady at 5.6%, above the expected 5.5%, with the claimant count coming in at 10.9k vs 17.2k expected. However, the unemployment rate was seen unexpectedly rising to 4.2% from 3.9% prior in the three months through February 2024.  At this level, the unemployment rate is now back up to levels last seen in August 2023 and just a touch below the 4.3% 2023 highs.

Wages in Focus

The wages data makes for interesting reading. While the headline figure was seen holding flat at 5.6%, regular wages (excluding bonuses) rose 6%, down slightly from the prior 6.1% reading. However, on the back of the latest drop in inflation, real wages were seen rising at their fastest pace in 2.5 years. Given the BOE’s guidance that companies avoid offering wage hikes, in a bid to keep inflation down, the data data will no doubt be causing some uncertainty for the bank.

BOE’s Green Pushes Back Against Easing Expectations

We recently heard from BOE’s Rachel Greene who warned against early rate cuts by the bank and said that traders were too eager in their rate cut projections this year. Greene warned that due to the persistence of inflationary pressures in the UK, rate cuts should still be a way off. Today’s data no doubt serves as evidence of this argument with wage growth remaining sticky.

BOE Outlook

Speaking at the bank’s last meeting. BOE governor Bailey said that the UK was on the way to winning its fight against inflation and signalled that the BOE could cut rates ahead of CPI returning to target. However, Bailey warned that there was still some work to be done on the more persistent areas of inflation, such as services. In line with these comments, GBPUSD looks likely to remain weak near-term, mainly fuelled by USD strength. However, if incoming UK inflation data shows any fresh uptick, this could well fuel a rally in GBP as traders push back their BOE easing expectations.

Technical Views

GBPUSD

The sell off in GBPUSD has seen the market breaking down beneath the 1.2612 level with price now testing support at 1.2437. With momentum studies bearish, focus is on a further push lower here with 1.2306 the next target for bears unless bulls can get back above the 1.2612 level anytime soon. 

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