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UK Wages Fall

GBP is falling today after the latest labor market data released this morning showed a firm drop in wage growth over the three months to November. Average earnings dropped to 6.5% from 7.2% prior, below the 6.8% the market was looking for, marking the third consecutive in the reading.  On the back of the continued decline we’ve seen in inflation, the data serves as a strong indication that further price falls are likely, keeping GBP skewed lower near-term.
 

Market Vs. BOE

The BOE has been among the more hawkish of the G10 central banks recently, sticking to its guns over tightening signals. While the bank acknowledges the recent falls in inflation, it warned that the fight is not yet over and as such further tightening might still be needed. However, the message has felt at odds with recent UK data, particularly inflation which has been falling steadily. Looking ahead this week, traders receive the latest UK CPI readings which have the potential to drive GBP lower still if a further fall is seen. Should a fresh decline be recorded tomorrow, traders are likely to start to push back against the BOE’s signals, anticipating earlier BOE loosening than is currently projected.
 

Technical Views

GBPJPY

For now, the pair remains atop the 184.35 level, having bounced from the range lows and the bull channel lows. While above here, focus is on further push higher and a fresh test of the 188.50 level, along with the bull channel highs. Should price turn down from here, however, 178.29 remains key support to watch. 

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