Do y’all need another news report to trade? Then check out today’s Forex Trading Guide for June’s U.K. jobs data. This report will be released on Wednesday (July 15) at around 9:30 am GMT. It usually injects the pound with some volatility upon release so you gotta be ready for this potential market-mover. If not (or if you need a refresher) , then it’s time to gear up and read up.
What is this report all about?
The Office for National Statistics (ONS) releases a comprehensive monthly report on the current state of the British labor market. And the key labor market indicators that forex traders pay attention to include the jobless rate, the claimant count change, and the average earnings index.
For the forex newbies out there, the claimant count change refers to the number of people claiming unemployment-related benefits every month (the lower, the better) while the jobless rate is the percentage of the total labor force that have no jobs but are willing to work and are looking for one (the lower, the better). As for the average earnings index, it basically refers to wage growth (the higher, the better).
Forex traders pay attention to jobs data because they are directly linked to consumer confidence and spending, which are major growth drivers of most economies.
What happened last time?
The previous report showed that claimant count change was a bit disappointing since it only dropped by 6.5K for the month of May. In addition, April’s reading was revised to a drop of 7.8K from 12.6K. Nonetheless, this means that fewer people are claiming unemployment-related benefits, so everything’s still cool.
Moving on, the jobless rate was unchanged at 5.5% as expected, but went down from 6.6% on a year-on-year basis. On a more upbeat note, the average weekly earnings for the February-April reporting period was better-than-expected at 2.7% (2.5% expected, 2.3% previous). But it gets even better if you consider that wage growth has been beating inflation in recent months, as the U.K. CPI for April actually even dipped into negative territory.
What is expected by most forex traders?
Forex market analysts are expecting the jobless rate to remain unchanged at 5.5% while the average earnings index is expected to increase to 3.3% from 2.7%. Claimant count change, meanwhile, is expected to post an 8.9K drop.
Pound traders would probably be keeping a close eye on the average earnings index because the Bank of England (BOE) reiterated in the latest MPC meeting minutes that they expect wage growth to pick up. Also, the BOE mentioned that inflation outlook in the medium-term depended on wage growth, among other things. In other words, wage growth is expected to have an impact on inflation and the overall direction of future monetary policy.
How does GBP/USD usually react?
For the previous month, the claimant count change was slightly disappointing but wage growth was better-than-expected, which explains why GBP/USD jumped shortly after the report was released.
Remember, the market was already paying attention to wage growth due to the statements made in the May Inflation Report wherein wage growth was cited as one of the drivers for inflation. Heck, traders even seemed to disregard the weak claimant count figure!
There was also some buyer follow-through during the later sessions, probably because the MPC meeting minutes was also released on the same date. The economic outlook presented in the MPC meeting minutes was practically unchanged from the May Inflation reports, which reflected the optimistic view that a rate hike would probably be the BOE’s next move.
How might the pound react this time?
For the June report, both claimant count change and the average weekly earnings are expected to show some improvement, so if the the actual readings are within expectations or better, then we can probably expect GBP/USD to go up. However, if the market’s expectations are not met, then we may possibly see some weakness.
As to whether there would be some follow-through during the later sessions, that is harder to forecast, but perhaps there might be an opportunity for a longer-term trade if it stays in line with the BOE’s relatively upbeat outlook. Keep in mind, though, that U.K. manufacturing production showed a bit of contraction while large non-commercial speculators recently upped their bearish bias for the pound so the currency’s gains might be limited.