The UK labor market report, set for release at 06:00 GMT this Tuesday, may significantly influence the British Pound (GBP) against the US Dollar (USD). Analysts are saying a downside surprise in wage growth would further compound the recent GBP weakness. This development could drag the GBP/USD pair lower toward the important 1.3300 level.
According to market experts, the ILO Unemployment Rate is expected to remain at 4.7%. That should remain the case through the last three months preceding September. Any misstep from these forecasts, especially on wages, can have devastating consequences for currency investors.
Wage Growth and Its Implications
Pulling recent data into more current context shows that wage growth has cooled just a tick to 4.8%, down from 5%. Although this figure is still quite strong, any future dip would certainly be viewed as bearish for the Pound Sterling. A softer reading may serve to embolden the bearish case for GBP and push the GBP/USD pair in a lower direction.
If earnings did rise significantly, that would strengthen the GBP. As this can potentially enable the duo to power through the short-term barrier at 1.3365. Such a move can easily send GBP/USD up toward the 1.3400 level. It’s too much to hope this soaring successful rebound would mark a remarkable comeback if good things start happening.
“The prospect of further rate cuts from the Bank of England in the near term remains less likely than the government would like.” – Michael Hewson
Market Sentiment and Fiscal Concerns
The current sentiment among investors reflects caution. The Bank of England is sending signals that more cuts aren’t on the way anytime soon. In the near term, this move would provide much needed short-term stabilization for the GBP. Fiscal worries tied to the UK’s economic environment may constrain responses to any positive data that come out.
Market participants are closely watching GBP/USD for signs of follow-through weakness and a potential trend change. Should that occur, it may expose very important support levels just below 1.3260. As of late last week, this region had sagged to a more than two-month low. Traders see it as an important level for steering through possible corrections.
Looking Ahead
This has traders on edge as they set up for the release of the jobs report, acutely aware of what can happen next. A downside surprise would intensify the bearish pressure on GBP pushing it further down towards the 1.3300 psychological level. Good wage growth data would tend to raise optimism, though that too would be moderated by the pro-cyclical fiscal worries that remain.