Forex Trading Guide: U.K. September Jobs Report

It’s time for another edition of my Forex Trading Guide! This time, let’s take a closer look at the upcoming U.K. jobs release and how it could affect pound price action.

What is this report all about?

Employment is one of the most important aspects of an economy, as it influences consumer confidence and domestic spending. A stable jobs market generally encourages consumers to spend more, which then boosts business production and overall economic growth. In other words, improving labor trends are good for the economy and its currency!

The U.K. jobs report has two main components: the claimant count change and the jobless rate. The claimant count change indicates the number of people claiming unemployment benefits during the month, making it a gauge of how many jobs were lost in that period. Meanwhile, the jobless rate shows the percentage of the labor force that is unemployed and looking for full-time work.

What happened last time?

For the month of August, the U.K. economy added 37.2K jobs and saw an improvement in the jobless rate from 6.4% to 6.2%, surpassing analysts’ estimates of 29.7K in hiring gains and a 6.3% jobless rate. As you can see from the GBP/USD chart below, the pair reacted positively to the release and was able to sustain its climb for the rest of the week.

GBP/USD 15-min Forex Chart

GBP/USD 15-min Forex Chart

Looking further back reveals that the U.K. has been churning out consistently strong jobs figures since May, averaging roughly 34.5K in employment gains for the past four months. In fact, the jobless rate has been steadily declining from 7.2% in February all the way down to 6.2% in August. To top it off, previous months’ data tend to be upgraded in the succeeding releases, indicating that the pickup in hiring is usually much stronger than initially reported.

What’s expected for the upcoming release?

For September, the U.K. economy is expected to have added 34.2K jobs, which is slightly lower than the previous month’s increase. Another improvement is expected for the jobless rate, which could dip to 6.1%.

As in previous releases, average hourly earnings could draw a lot of attention since BOE officials had been commenting on the lack of wage growth. For them, this shows that there’s a significant amount of economic slack to be absorbed. The 3-month average earnings index is projected to post a 0.7% uptick, a slightly faster pace of increase compared to the previous 0.6% reading.

How might GBP/USD react?

Another strong U.K. jobs report could lead to more gains for the pound, which appears to be holding up pretty well against the rallying U.S. dollar so far. After all, five consecutive months of better than expected hiring gains would be hard to ignore. It might even be enough to convince more forex traders that the BOE is on track to tighten monetary policy sometime next year.

On the other hand, a dismal jobs report might cast doubts on the country’s ability to sustain strong hiring trends. This might even support the BOE’s warnings that the slowdown in the euro zone is starting to take its toll on the U.K. economy, which might then put GBP/USD in selloff mode.

Take note though that this event typically results in volatile forex price action for the pound pairs so you might wanna sit on the sidelines if this ain’t your cup of tea. Just don’t forget to review how the actual numbers turned out so you can decide whether or not to change your bias for the pound!

What’s your game plan for the upcoming U.K. jobs release? Share your thoughts in our comments section or cast your votes in our poll below!

  • ForExchange

    Hi ForexGump!

    Knowing how weak today all GBP data came out, does it change anything in your gameplan?

    FE

    • Yeah I think a bunch of factors are lining up against the pound these days (weak inflation, BOE concerns on euro zone recession, and now the weaker than expected hiring gains). It doesn’t help that risk sentiment isn’t in its favor as well. What do you think?

      • ForExchange

        I closed yesterday my GBP long trades. Basically for the same reasons what you said. IMO risk aversion can turn good but the Euro zone recession cannot be turned too fast and it will pull the pound down with it. For sure you will write an article on it soon 🙂

        • Hahaha, thanks for volun-telling me to write about it! Still struggling with the long-term/short-term impact of it all though. After all, the promise of easy monetary policy even as the economy shows improvements could lead to currency appreciation eventually.

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