EUR/GBP – Another BoE hike likely as UK wage growth continues to rise

  • UK wage growth hits a record high at 8.5% including bonuses
  • Unemployment remains at 4.3% as number of unemployed falls by 207,000
  • Sterling trades lower after the release

The Bank of England may have little option but to raise rates again next week despite comments recently indicating the debate will be fairly balanced.

The UK labour market figures offer something for everyone on the face of it but under the circumstances, BoE hawks will likely be more emboldened by the figures than the doves.

Employment figures fell for a second month as the unemployment rate stayed at 4.3% which may be viewed as mildly encouraging to policymakers hoping to see more slack in the labour market. But much more progress will be needed if we’re going to see the vote swing in favour of a hold.

Especially when wage growth is continuing to rise, with average earnings not only rising to 8.5%, including bonuses but the June figure also being revised higher to 8.4%. I don’t see how the MPC can see that and even consider pausing on the whole and markets seem to agree, with a 25 basis point hike almost 80% priced in. What comes after that is harder to judge at this stage and will depend on how the data performs over the next two months.

Will we see a breakout?

The pound slipped a little since the release following the initial volatility which has set up quite an interesting technical picture.


Source – OANDA on Trading View

While the pair has been trading with a slightly more bearish bias – tracking the 55/89-day simple moving average band lower – the broader trend over the last few months has been sideways. So is that set to continue or could we see a break lower?

What’s interesting this week is that while the pair has traded lower at times, it’s recovered those losses on both days to trade in positive territory. Those long lower wicks could be a bullish signal as the pair has clearly attempted to head lower again off the SMA band but instead for a fourth day in a row, it’s threatening to break it.

A move back above may shift the focus from the bottom of the range to the top of it, especially as it could be followed by a break of a double bottom neckline which would be interesting. The double bottom isn’t perfect but it’s certainly an interesting setup.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam