GBP/USD – Pound Rises on Strong UK Wage Growth Report

GBP/USD has posted gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.2950. On the release front, British employment numbers were mixed. Wage growth climbed 2.4%, matching the forecast, and the unemployment rate dipped to 4.6%, below the estimate of 4.7%. The news was not as good from unemployment claims, which rose 19.4 thousand, well above the estimate of 7.5 thousand. In the US, there are no major releases on the schedule. On Thursday, the UK releases Retail Sales, which is expected to rebound with a gain of 1.2%. The US will release unemployment claims and the Philly Fed Manufacturing Index.

The Bank of England has been saying that Britons will have to get used to a lower standard of living, and the warning has become reality with the release of the latest wage growth report. Wages rose 21% year-on-year in the first quarter, resulting in real wages dropping for the first time since 2014, after adjusting for inflation. CPI, the primary gauge of consumer inflation, continued to move upwards, posting a sharp gain of 2.7% in April, matching the BoE forecast for inflation in the first quarter. This reading marked the strongest gain in CPI since September 2013. The BoE is expecting inflation to hit 3 percent, raising speculation that the central bank may raise interest rates to keep inflation under control. The weak pound has contributed to higher inflation, which has hurt wage growth and caused consumers to scale back on spending, a key component of economic growth.

The political turmoil which has gripped Washington appears to be spreading. The US media is having a field day, as the Trump administration lurches from scandal to scandal. On Tuesday, reports surfaced that President Trump asked former FBI director James Comey to end an investigation into ties between Russia and Trump’s former security adviser, Michael Flynn. Another brewing controversy is Trump’s passing of classified intelligence to the Russian foreign minister earlier this week. Trump initially denied the claim, but has since backtracked, admitting that he did share intel with the Russians, but that he had acted within his rights. With the Trump administration busy putting out political fires, investors are growing increasingly nervous that the president’s agenda for a stimulus package and tax reform will stall.

GBP Dips as Inflation Hits Near-Four Year High

UK Wages Falling in Real Terms

GBP/USD Fundamentals

Wednesday (May 17)

  • 4:30 British Average Earnings Index. Estimate 2.4%. Actual 2.4%
  • 4:30 British Claimant Count Change. Estimate 7.5K. Actual 19.4K
  • 4:30 British Unemployment Rate. Estimate 4.7%. Actual 4.6%
  • 10:30 US Crude Oil Inventories. Estimate -2.5M. Actual -1.8M 

Thursday (May 18)

  • 4:30 British Retail Sales. Estimate 1.2%
  • 8:30 US Unemployment Claims. Estimate 240K
  • 8:30 US Philly Fed Manufacturing Index. Estimate 19.9 

*All release times are EDT

*Key events are in bold

 

GBP/USD for Wednesday, May 17, 2017

GBP/USD May 17 at 12:00 EDT

Open: 1.2918 High: 1.2990 Low: 1.2906 Close: 1.2950

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2706 1.2865 1.2946 1.3058 1.3121 1.3223
  • GBP/USD was flat in Asian trade. The pair posted gains in the European session but has edged lower in the North American session
  • 1.2946 is fluid. Currently it is a weak support line
  • 1.3058 is the next line of resistance

Further levels in both directions:

  • Below: 1.2946, 1.2865, 1.2706 and 1.2571
  • Above: 1.3058, 1.3121 and 1.3223
  • Current range: 1.2946 to 1.3058

OANDA’s Open Positions Ratio

GBP/USD ratio continues to show limited movement this week. Currently, short positions have a majority (59%), indicative of trader bias towards GBP/USD reversing directions and moving to lower ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.