This week is going to be important for the pound on an economic front. While the headlines continue to focus on the Tory leadership contest and what that means for Brexit, we can’t forget about key economic data. The first of the three major events coming up is tomorrow’s employment data.
The UK claimant change is the number the market focuses on. And it’s got a tradition of moving the exchange rate. Traders will be extra attentive to it for clues for what we might expect on Wednesday’s CPI numbers, and what that means for BOE policy.
What We are Looking For
All the major data comes out at the same time, so it’s not unusual for the market to bounce back and forth a bit at first. This is the first data we get after the weekend, as well, which ought to make it a little more impactful
Expectations are for the number of people seeking unemployment assistance to fall to 13.4K. This is down from the 23.2K registered prior. If expectations were to be met, this would be the lowest number since August of last year.
Remember that the smaller this number, the better it is for the pound. With all the talk of the potential negative impact of Brexit, a smaller number of people becoming unemployed would be a welcome result for the bulls.
A result below 15K could be considered quite positive for the pound since that would bring it in the lower end of the 0-30K range that this result tends to oscillate between. In the other direction, though, near or above that 30K figure would be quite negative. There tends to be a slight improvement in employment figures during the summer, so an out of range bad result would have a bigger impact.
The UK’s unemployment rate is already below what most economists consider its structural level. This means that increasing jobs will put pressure on wage prices, and from there, on inflation.
The current expectations are for unemployment to drop to 3.7% from 3.8%. While a slight improvement, at this level, it’s quite significant.
The market ought to be getting used to the unemployment rate breaking new record lows since the ’70s since it’s been doing that for a while. Now the real concern is the tightness of labor, the difficulty employers have in finding new hires, and the impact of increasing wages on the currency.
Average Weekly Earnings
This is the figure analysts will be paying extra attention to in order to get some insight into what we might expect from the CPI figure. Despite the low unemployment, we can actually expect the rate of increase here to slow to 2.9% from May’s 3.0%. This is well above the inflation rate, meaning that there is increasing cost pressure on UK businesses. It’s also above the BOE’s target. And this could lead to them being concerned in the near future.
However, there are other factors that go into the inflation rate, leaving it lower than wage inflation, as might be expected. Nevertheless, inflation has been mirroring the average weekly earnings rate change so far this year.
Lately, the GBPUSD has been driven mostly by the American side. It’s going to be up to this data to change that situation, or give the pair another push higher.