GBP/USD Forecast: Sterling Tests Base Lows As The UK Employment Report Casts Mixed Picture

This article originally appeared on FXStreet.

• The UK average weekly earnings excluding bonuses rose 2.9 percent y/y while earning including bonuses decelerated to 2.6 percent y/y in three months to March.
• The UK unemployment rate remained stuck to 1975 low of 4.2 percent.
• The bad news is that the UK claimant count rose increased 31.2K against 7.8K expected in April with a revision for March from 11.6K to 15.7K.
• Adding the pressure on GBP/USD is the US benchmark Treasury yield that rose above 3.05 percent on Tuesday, the highest level since 2011.

The GBP/USD is trading 0.55 percent lower at around 1.3480 hours after the UK labor market report for April saw the wage growth meeting the market expectations together with the unemployment rate, but the number of people seeking the unemployment benefits rose above the expectations. Adding to the pressure are the US benchmark Treasury yields that rose above 3.05 percent on Tuesday, the highest level since 2011 in support of the US Dollar.

While markets saw the initial price action on GBP/USD to the upside toward 1.3560 with the unemployment rate and the headline wage growth including as well as excluding bonuses met the market expectations, the overall tone of the UK April labor market report is rather negative as the claimant count rose 31.2K against 7.8K expected in April with a revision for March from 11.6K to 15.7K. Rising claimant count is a negative signal for the future of the UK labor market as the number of the unemployment benefits seekers increased adding to the army of 1.42 million people without the job in the UK.

The importance of the UK labor market report is also underlined by the fact that in April when the March wage growth data missed the market expectations just by 0.1 percent, it triggered the massive selloff on GBP/USD all the way down to 1.3460 from the 22-month high of 1.4377 from April 17.

Adding to the mixed picture of the report is the divergent trend of real wage growth, the one that is inflation-adjusted. The UK average weekly earnings in real, inflation-adjusted terms increased by 0.4 percent excluding bonuses, but were unchanged including bonuses, compared with a year earlier.

Technically, the GBP/USD is on the downside with the Momentum, the Relative Strength Index and Slow Stochastics all pointing downward on 1-hour chart. The GBP/USD is likely to face some support in 1.3460-1.3500 with the close below that level needed to target lower levels of 1.3380 representing December 2017 low and 61.8 percent Fibonacci retracement of the uptrend from 1.2770 to 1.4377.

GBP/USD 1-hour chart