Will the British pound get a chance to redeem itself against its forex peers during the release of the U.K. jobs report? Or is it in for another disappointment? Better mark your calendars for the actual release on Wednesday (August 12) 8:30 am GMT and review this Forex Trading Guide for the event.
What is this report all about?
The U.K. jobs report has two major components: the claimant count change and the unemployment rate. The former indicates how many people claimed unemployment benefits during the month, which reflects whether jobs were lost or created then. A positive reading means that more Brits were jobless while a negative reading shows a decline in unemployment. Meanwhile, the unemployment rate simply indicates the percentage of folks without jobs relative to the working age population.
Another important part of the jobs report is the average earnings index, which measures the three-month rolling average of salaries for both public and private employees. Not only does this serve as a leading indicator for consumer spending, but it also has a say in overall inflation levels.
How did the previous release turn out?
The U.K. economy saw an increase in joblessness for June, with a total of 7K Brits claiming unemployment benefits for the month, instead of posting the expected 8.9K increase in hiring. This was enough to bring the unemployment rate up to 5.6% from its record low of 5.5% in the earlier months.
Taking a longer walk down memory lane shows that the U.K. has actually been churning out weaker than expected jobs figures since March followed by mostly negative revisions in later releases. On a more upbeat note, the average earnings index jumped to 3.2% in the three-month period ending in May, its fastest pace of growth in the last five years.
What’s expected this time?
Forex market watchers are expecting to see a 1.4K rise in claimants for July, a slower increase in joblessness compared to that of June. Meanwhile, the unemployment rate is expected to hold steady at 5.6% while the average earnings index could ease back to 2.8%.
Keep in mind that recent data and events in the U.K. have been mostly disappointing, which explains why the pound has been retreating against its forex rivals. As it turns out, majority of the BOE policymakers aren’t in the mood to hike interest rates yet and would rather hold out for more improvements in hiring and a stronger pickup in wages before deciding to tighten monetary policy.
How might GBP/USD react?
An upside surprise or a negative claimant count change reading could spur a rebound for the pound (Hey, that rhymes!) since it might convince several forex traders that the U.K. economy is still doing relatively well compared to most of its peers in the developed world. On the other hand, another disappointing read or positive claimant count change figure could push the pound lower against its forex counterparts if traders price in lower odds of a BOE rate hike in early 2016.
Keep in mind that pound pairs are already pretty volatile under normal market conditions and could be in for larger spikes during the actual release of the U.K. jobs report. If you’re not comfortable with these potential swings, there’s no shame in sitting on the sidelines and watching price action unfold. And if you’ve already got some pound positions open, don’t forget to adjust your exposure ahead of this market catalyst. Good luck!