UK job report shines but pound dips

In North American trade, GBP/USD is trading at 1.3861, up 0.01% on the day. Earlier in the day, the British pound climbed close to the 1.39 level before retracing these gains.

UK wages jump, unemployment claims slide

The June employment report was strong, which briefly sent the pound to higher ground. Unemployment claims fell by 114 thousand in June, after a decline of 92 thousand in May. Wages were up strongly in May, with the 7.3% gain outperforming the previous read of 5.7% and beating the consensus of 7.1%. The services sector showed a significant gain in payrolls, as the reopening of businesses has enabled the labour market to continue its strong recovery.

Unemployment remains low, although it ticked upwards to 4.8% in May, up from 4.7%. This figure is artificially low, since the government’s furlough programme has some 2 million workers, and the plan is due to expire in September. Still, the labour market is showing less slack, and with the government committed to completely opening the economy on July 19, there should be even greater demand for workers in the coming months.

Powell remains dovish

For months, the Fed has insisted that the surge in inflation is transitory, and Fed Chair Jerome Powell did not budge from this stance in testimony before the House on Wednesday. Powell admitted that inflation has “increased notably”, but insisted that the jump is due mostly to temporary factors, such as shortages of used cars and semiconductors, and that inflation would ease when conditions returned to normal. Powell stressed that the Fed would not change monetary policy before the economy showed “substantial progress”.

As US inflation levels continue to head higher, the markets have been looking for clues as to when the Fed will taper its minimum USD 120 billion/mth in bond purchases. Powell did not provide any taper timelines, saying only that Fed officials are discussing scaling back the pace of bond purchases.

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GBP/USD Technical Analysis

• There is resistance at 1.3953. Above, there is resistance at 1.4007
• On the downside, 1.3794 is providing support. This is followed by support at 1.3689

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