Traders are looking forward to the next UK employment data. In particular, they’re looking at the Unemployment Rate which is due to be released in the coming weeks. The new baseline unemployment projections have the Unemployment Rate increasing modestly. It has been forecast to increase from 4.5% to 4.6% in the three months between this February and April. This data is important. It serves as one of the best indicators of the health of Britain’s labor market. Further, it has a significant impact on the British Pound (GBP) and the EUR/GBP currency cross.
The Unemployment Rate, which was recorded at 4.5% last month, is indicative of a three-year high. An increase in this number usually precedes bad news about the state of the UK’s economy, causing great angst among traders and investors. If this expected increase goes ahead, we could see some very bearish reaction to the GBP. Such a dramatic change will likely impact its value relative to the Euro and other currencies.
The Significance of the Unemployment Rate
The Unemployment Rate is considered to be one of the most robust measures of labor market status in all of Britain. An uptick in this series is a clear sign of a labor market contraction. This trend is an indicator of a cooling economy. Consequently, traders pay close attention to this number for indications about where the economy may be headed, and how the financial markets might react.
Whenever the Unemployment Rate increases, observers will almost always panic about a slowing labor market. A further slowdown in wage growth would only deepen those concerns. This combination might lead the Bank of England (BoE) to start thinking about reversing some of its own monetary policy moves. Any decrease in the Unemployment Rate would be welcome news for the GBP. It sends a very positive signal about economic resilience. Conversely, a rise in the unemployment rate is treated as bad news.
The winner shall be Market participants are extremely sensitive to how these numbers might impact their trading. A higher Unemployment Rate could mean a bearish consolidation phase for the GBP, particularly if it aligns with recent range-bound price action observed in the EUR/GBP cross.
Implications for the GBP and EUR/GBP Cross
The expected increase in the Unemployment Rate has meaningful repercussions for the GBP. Currency traders can be some of the most sensitive market actors to labor market information, especially if it dramatically misses forecasts. If the Unemployment Rate creeps up as forecast, it may dredge up jitters regarding the GBP’s strength. The GBP would therefore depreciate against currencies such as the Euro.
Additionally, a greater Unemployment Rate would be sure to bring some unwanted scrutiny on the EUR/GBP cross. What’s more, traders will be keen to reevaluate their positions as data regarding the UK’s economic malaise clips comes rolling in. This may be paving the way for greater currency pair volatility. And while their impact is often misunderstood and incorrectly minimized, the importance of these figures to market-specific, short-term trends and positioning can hardly be overstated.
Traders especially watch the 200-day Simple Moving Average (SMA). This important technical level acts as an important fulcrum point in gauging bullish or bearish moves in the GBP. Conversely, if the Unemployment Rate trend moves in the bearish direction, it can affect trading behavior around this moving average. This shift would then be compounded by other market dynamics.
Traders Await Meaningful Economic Indicators
As the release date for the jobs data approaches, traders are keenly awaiting insights into the UK labor market’s state. The National Unemployment Rate wouldn’t be released until almost six weeks after April comes to a close. This announcement is welcome news to everyone across the market looking for clarity and direction.
The simultaneous emergence of sharply rising unemployment and stagnating wage growth may forebode more drastic economic troubles down the line for Britain. There’s a larger story behind jobs data than just the numbers. It’s those possible changes to monetary policy and economic outlooks that traders have to plan for.