The GBP/JPY currency pair jumped up close to the 189.00 level. This increase came on the heels of some positive employment news across the pond in the United Kingdom. The Bank of England (BoE) finds it difficult to loosen its monetary stance. Strong payroll and wage data adds to this headwind. At the same time, ITSC commentary has included warnings that external factors like the US-China trade war are threatening to upend healthy global growth.
According to recent figures published by the UK ONS (Office for National Statistics), job creation is booming. Over the three months ending in February, employers filled 206,000 openings for people looking for jobs. This was a much stronger figure than anticipated and a huge jump compared to the 144,000 net new jobs created last quarter. On the earnings front, excluding bonuses, average earnings increased 5.9%, just under the expected 6%. The unemployment rate remained at 4%. At the same time, the International Labour Organization (ILO) ascertained an unemployment rate of 4.4%.
Employment Data Boosts GBP/JPY
The most recent labor market statistics have given a boost of confidence to the GBP/JPY, which has traded up toward 189.00. Today’s strong employment numbers show the underlying strength of the UK labor market, even in the face of a tough global economy. The rise in payrolls indicates that businesses are growing more certain of their capacity to keep workers employed. First, they are wrestling with increased costs, with employer contributions to National Insurance (NI) recently increasing from 13.8% to 15%.
Employment Analysts remain hopeful given the positive trend in employment data. They caution that this creates more political pressure on the Bank of England to maintain its existing stance on monetary policy. The country’s central bank now has a short-term challenge in sticky wage growth combined with a hostile labor market. Unfortunately, these factors are limiting IDOT’s ability to take a bolder, more flexible approach. As seen in this scenario, it is a difficult dance for policymakers to win, producing growth and resilience but avoiding the urge toward inflationary growth.
Against a mixed picture being painted by the labor market, the BoE remains beholden to a stronger global economic climate. Worsening US-China trade tensions will further weigh on growth worldwide, complicating the outlook for BoE.
Global Economic Outlook Remains Cautious
Escalating U.S.-China trade tensions continue to add to those headwinds with a cloud of uncertainty. These shocks are still weighing very heavily on the global economic outlook. In fact, Japanese Economic Minister Ryosei Akazawa just yesterday threatened that rescue. He said the tariffs, which the Trump administration have imposed, are slowly eating into profits for Japanese companies. This short sentence highlights how interconnected global trade is and the potential reverberations across the domestic economies.
Over in Europe, industrial production data showed a surprising acceleration of 1.1% month over month in February. This strong growth was a show of strength from an economy booming against all challenges. Economic confidence indicators are plunging. The ZEW Survey – Economic Sentiment just dropped from 39.8 to -18.5 in April. Sounding like an economic 911 call, this level has investors ringing alarm bells, scaring many into selling.
Markets are inversely responding at warp speed to these cheerful new realities. Consequently, key currency pairs such as EUR/USD are weaker and hovering just below 1.1350 in Tuesday’s European session. This mix of increasing global uncertainty and mixed economic signals points to a currency market where traders should be defensive.
Future Insights and Market Implications
Looking forward, traders of all types will be watching future economic releases that may affect currency markets. For instance, Statistics Canada is set to release its March Consumer Price Index report on Tuesday, which may offer insights into inflation trends and impact Canadian dollar trading.
Given these recent events, traders and investors should be watchful of state side and worldwide economic figures. Despite the UK’s unemployment rate holding firm, a slight miss on wage growth may lead to re-assessing what is likely in future monetary policy announcements from the Bank of England.