With the UK Parliament out on holiday, Brexit developments aren’t as likely. That being said, we’re still looking at a busy week for sterling.
There are several key bits of data coming out over the next few days, so we’ll be expecting some turbulence in the markets. For now, let’s focus on the employment change data that comes out tomorrow in the early trading session.
The claimant change number has a habit of moving the exchange rate, even though the BOE is not officially worried about the jobs situation in the UK. However, with most other central banks pushing the cut button quite aggressively, forex traders are on the lookout for signs that Britain might hop on the bandwagon. Or race off the cliff, depending on whom you talk to!
A weakening in the employment figures might be a reason for the BOE to start looking at easing measures.
What We Are Looking For
All the data comes out at the same time. And the employment figures are the only major economic event for the pound tomorrow. The market usually focuses on the Claimant Count Change number, but the others can move the market if the claimants are in line with expectations. This is also the first full set of jobs data covering the period since Theresa May’s resignation.
Expectations are for people applying for unemployment assistance to decrease to 15.1K. This would be substantially less than the 38K from last month. Should the prediction prove true, it would also be the lowest number since August of last year, yet again. This is one of those cases where a lower number is actually better for the pound. In fact, a higher than expected number would likely send the GBPUSD lower.
The trend over the last quarter has been for claimants to increase slightly each month during what is otherwise the more busy part of the year for employment. A normal result is typically between 0-30K, and lately, the results have been at or above the high end. A drop back to the middle of the range would be a welcome sign for job creation in the UK, and it would likely support further pound strength
We can expect the unemployment rate to stay steady at 3.8%. That is well below what most economists consider structural level. This means we ought to be paying close attention to labor costs and their potential impact on inflation.
If the expectations prove to be correct, this would be the fourth month that the unemployment rate was at record-low levels. A tick up of a decimal or two might not phase the markets since an adjustment would be expected after such a long period of stagnation.
Average Weekly Earnings
This is the figure we’re most concerned about if we want to get some insight into the BOE’s potential next moves. Expectations are for average weekly earnings to increase once again, now by 3.0%. This is a slight moderation of the 3.4% pace registered last month. This is significantly above the 2.0% CPI rate, and it’s been like this since well before the beginning of the year. During this period, the inflation rate has been mirroring the change in average weekly earnings.
If wages keep going up at this rate, it’s hard to see how this won’t drag inflation up and keep the BOE from considering rate cuts in the near future. However, we need to get more data to have a better understanding of the trends, such as CPI data tomorrow and retail sales the day after.
There’s plenty on the economic calendar to keep the pound active before Parliament comes back into session. The FTSE100 has taken a bit of a dive around the start of the month, mostly due to the trade situation. Normally the currency would be expected to increase in such circumstances. But, the pound is now behaving more like a high-risk currency. We can probably expect this to continue until the end of October at least.