British pound eyes UK employment release Somoybulletin

• UK releases employment data on Tuesday
• BoE’s Bailey says rate decisions will be tight

The British pound has started the week in positive territory. In the European session, GBP/USD is trading at 1.2166, up 0.17%. The pound had a rough week, falling by 0.74% after a hotter-than-expected US inflation report saw the US dollar climb sharply.

It’s a busy week in the UK, with employment data on Tuesday, followed by inflation on Wednesday and retail sales on Friday. The Bank of England will be watching closely, with the inflation report being the key release of the three. The BoE meets next on November 2^nd after pausing at the September meeting. The decision marked the first time after 14 consecutive rate increases that the BoE held rates. The move was a close call, with a 5-4 vote in the Monetary Committee Policy.

UK job growth, wages expected to ease

The BoE’s rate hikes have cooled the economy and job growth has dropped off sharply. Job creation fell by 207,000 in the three months to July, the sharpest job decline since September 2020. This sharp downtrend is expected to continue, with an estimate of a loss of 195,000 for the three months to August.

At the same time that job growth is falling, wage growth remains very strong. Average earnings including bonuses rose 8.5% y/y in the three months to July, and the market estimate for the three months to August stands at 8.3%. High wage growth is contributing to inflation, which currently stands at 6.7%. That figure is the lowest since February 2022 but is the highest in the G-7 and nowhere near the BoE’s 2% target.

Bank of England Governor Bailey said on Friday that future rate decisions would continue to be tight. The central bank is keeping its options open, and Deputy Governor Broadbent said last week that it was an “open question” whether the Bank would raise rates again. Broadbent noted that energy prices were dropping, which would likely inflation back to the 2% target by 2025. The issue facing Broadbent and his colleagues at the BoE is whether inflation will fall fast enough without any further hikes or will the BoE have to tighten further.

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GBP/USD Technical

• GBP/USD is testing resistance at 1.2164. Above, there is resistance at 1.2202
• 1.2066 and 1.1973 are providing support

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