GBP/USD Bounces as UK Unemployment Rate Holds Firm

The UK unemployment rate remained unchanged for the three months to December 2022, in line with expectations. The number of unemployed for up to six months increased, driven by people aged 16 to 24.

The number of people in work in the UK rose by 74K in the three months to December, well-above market forecasts of a 40K increase and following a 27K rise in the previous month. Meanwhile, from November 2022 to January 2023, job vacancies fell by 76K to 1,134K.

The seventh consecutive quarterly fall reflects uncertainty across industries, as survey respondents cite economic pressures as a factor in holding back recruitment. UK Chancellor Hunt commented that unemployment remaining close to record lows is an encouraging sign of resilience in our labor market.

The wages in the United Kingdom increased 5.9% in December 2022 over the same month in the previous year, beating estimates and down from the last print of 6.4%. The worry, however, will be in the rise of average earnings, excluding bonuses which increased to 6.7%, beating the forecast of 6.5%.

Figures compare with market forecasts of a 6.2% and 6.5% rise, respectively. In real terms (adjusted for inflation), total and regular pay growth fell from October to December 2022 by 3.1% for complete payment and 2.5 for regular pay.

This is smaller than the record fall in actual total pay we saw from February to April 2009 (4.5%) and remains among the most significant falls in growth since comparable records began in 2001. Wage growth has remained a sticking point for the Bank of England and a key contributor to inflation.

The IMF warned the UK is yet to absorb as many people back into employment as it had before the pandemic in March 2020. Despite the positive data out today, this seems set to continue with BDO (accountancy and business advisory firm) releasing its monthly business trends report, which indicates UK businesses plan to hire less but pay more for those they need.

The report further indicated that UK businesses plan to recover these costs by raising prices, which will worry the Bank of England as it looks to tame inflation. The Bank of England has made its feelings known regarding the labor market and will closely monitor its decision-maker panel (a business survey), with the next installment due on March 2.

This forward-looking gauge on potential wage and price pressures will show what to expect in the months ahead. The initial market reaction following the news has seen GBPUSD jump 25 pips to trade at 1.21650. Looking at the bigger picture from a technical perspective, the GBP/USD price pushed back yesterday toward the 50-day MA.

We remain between 200 and 50-day MAs with a break above the 50-day MA likely to face resistance at the 1.2270 area, the lower end of the range breakout from February 2. A potential downside break must contend with the psychological 1.2000 handles and the 200 and 100-day MA if it is to make a significant push to the downside.

At this stage, the technicals aren’t giving much away, making a breakout in either direction possible.

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