UK Jobs Data Fails to Cheer Up GBP Pairs, Focus on Carney Speech

Sterling (GBP) Talking Points:

• UK jobs data provides mixed sentiment as wages manage to grow but claimant change is higher than expected

• Tory leadership race drags on the uncertainty around Brexit, GBP confidence deteriorates

• GBPUSD and EURGBP continue to head lower towards year-lows/highs with further volatility expected

GBP was losing some ground in the beginning of the morning session in anticipation of UK jobs data. Both GBPUSD and EURGBP were heading towards their year lows and highs experienced in January signalling that investors anticipated the data to show a deterioration in the jobs market as the UK political landscape continues to deteriorate investor confidence.

PRICE CHART: GBPUSD SLIDES IN ANTICIPATION OF JOBS DATA (5-MIN CHART)

The UK unemployment rate remains at 3.8%, its lowest level in 45 years, and wage growth has picked up after three months of stagnation. Average earnings were up 3.6% in May, up from 3.4% in the previous month and above expectations of 3.1%, and earnings including bonus was up 3.4% in the same month. Adjusted for inflation, weekly earnings were up 1.7% and 1.5% including bonus, which shows that wages managed to grow in May after wage change adjusted for inflation had remained unchanged for 3 months. But the overall data was mixed as the 3-month employment change for the month of May was 28k, well below expectations of 45k, whilst the jobless claims change in the month of June was 38k, a figure much higher than expected, which kept GBP from recovering its pre-announcement losses. But a weaker pound will continue to provide support to UK equities, playing in to the global risk appetite which remains solid, and could provide a boost to UK exports.

Further moves in GBP pairs can be expected as BoE Governor Mark Carney speaks at a panel in Paris at 1200 GMT.

Brexit Uncertainty Continues to Loom

The ongoing Tory leadership change continues to dampen sentiment in the British economy as both candidates seem set to deliver Brexit on October 31, regardless of the terms of the withdrawal. Despite Jeremy Hunt being less stern about his Brexit stance, both him and front-runner Boris Johnson are believed to back a no-deal Brexit if no amendment to the withdrawal agreement with the EU can be reached by the October deadline, which is keeping markets on edge.

The risks Brexit pose to the British economy have been further acknowledged by the BoE as they seem set to change their forward guidance as “a global trade war and a No Deal Brexit remain growing possibilities”. The BoE may abandon their intention to hike rates to adapt their policy to other Central Banks around the globe, which are turning dovish with expectations of rate cuts to come from most them.