The UK’s ILO Unemployment Rate increased to 5.0% for the three months to September. That figure far surpasses predictions, which had been set at 4.9%. This increase comes at a time of confusing economic indicators. At the same time, the GBP/USD currency pair moves into important support levels in the forex market. GBP/USD is presently trading 1.3170 area. Currently, it’s testing very short-term support with the nine-day Exponential Moving Average (EMA) at 1.3163. A decisive move lower could drive the euro/dollar to a seven-month low near 1.3010.
Just released data is pointing to an increase of 20.3K for the UK’s Claimant Count Change, due out for October. This recent data becomes even more important given the overall trend in employment. This marks a drop from an already low Claimant Count Rate of 4.4% in September. The employment picture is getting pretty darn tight. In September, the Employment Change data showed a loss of 22K jobs, an alarming reversal from the 91K jobs added in August. Even with all the depressing numbers, UK Average Earnings are in fact on the rise, very slowly, however. Projections from Bloomberg suggest they might grow even faster, at 4.9% for the three months ending in September.
Economic Indicators Show Mixed Signals
The increase in the unemployment rate to 5.0% is a significant jump from the last released number of 4.8%. Analysts are watching this indicator very closely, as it is the best measure of the overall health of the UK job market. The surge unsettles fears over lurking fragility in job stability and robustness of the recovery.
The Claimant Count Change for October adds further confusion to the economic picture. An increase of 20.3K is a sign that more people are filing for unemployment benefits. Perhaps this trend underscores the difficulty we still have in creating and keeping those jobs. This data has the potential to inform monetary policy decisions. Now, the Bank of England is weighing its broader impacts on the shape of the economic recovery.
Moreover, the Employment Change data, a more granular measure of private industry firm-level employment, reflects a deepening contraction with a loss of 22K jobs in September. In August, that economy gained an astounding 91,000 jobs. This gain is added against a backdrop of a very volatile employment landscape, still in danger from inflationary and recessionary economic threats.
Currency Market Reaction
The release of the new unemployment numbers and employment statistics have shaken the market. Consequently, GBP/USD is now trading around 1.3131, down by 0.40% so far today. The currency pair is currently testing a critical support level provided by the nine-day EMA at 1.3163. Analysts have their eyes peeled for a major move below this support line. If realized, it may signal a deeper move down to the seven-month trough at 1.3010.
If GBP/USD continues trading above the nine-day EMA, bullish momentum may build. That could get it a lot closer to the 50-day EMA at 1.3328. Traders are on constant lookout for these technical levels, as they are an indication of the market’s mood and outlook for future economic performance.
The BOE’s recent GBP/USD policy flip-flop underscores how skittish markets can be. Economic indicators such as unemployment rates and earnings data are key factors for this sensitivity. As investors get accustomed to this, the conversation and implementation will have to involve investors reacting to the different risks and opportunities they see.
Earnings Growth Offers Some Optimism
However, despite mounting unemployment and unclear employment data, the future for average earnings looks much more promising. UK Average Earnings, including bonuses, are trending upwards at 4.9% for the three month period ending in September. That’s only a 0.2% raise from the 4.8% growth that was recorded in the last quarter.
On the wage front, average earnings excluding bonuses ticked up slightly to 4.6% year-over-year in September from the previously reported 4.7%. This substantial boost in earnings would offer substantial relief to households feeling the pressure of escalating costs of living. It can definitely increase consumer spending for the better.
Analysts warn that increasing wages are the best way to increase purchasing power. They need to be weighed against anti-competitiveness effects related to inflationary pressures and job losses. Political and social implications Earnings growth and employment stability The balance of these two forces, earnings growth and employment stability, will be key in determining our future economic picture.