Another Bank of England rate hike becomes more likely
- A solid February UK jobs report: Mixed news on jobs, but higher than expected wage growth is inflationary
- GBP jumps: The GBP has rallied on major forex, with the USD underperforming amidst a mild positive risk appetite.
- Elsewhere, equities are a shade positive: European indices are edging higher with US futures around the flat line.
- Metals and oil edge higher: In commodities, gold and oil are showing mild gains, with silver flat.
A mixed bag for jobs but wage growth remains strong
The UK labour market remained solid in February, with a mixed bag of data out from the ONS this morning:
- Unemployment ticked up to 3.8% in Feb (from 3.7%) which was broadly in line with expectations.
- The 3-month level of employment for the UK improved to 75.8% in February too, with January’s employment change increasing by 169,000.
- The claimant count also increased by 28,000 which was higher than expected.
A higher participation rate means more people looking for jobs and this would have contributed to a higher level of unemployment.
Wages remain strong in the UK
However, the key takeaway is wage growth.
Average Weekly Earnings remained strong at 5.9% (total, including bonuses) and 6.6% (ex-bonus).
This was no change on January’s reading, but the market had been looking for a strong decline here on both.
This is not great news for the Bank of England.
Average wages have been a tracker of core CPI in the past 18 months and with wages higher than expected, this leaves the Bank of England more likely to need to hike rates again in May.
If this is now followed by a hot UK CPI release tomorrow, we can expect another BoE rate hike of 25 basis points in May.
Broader sentiment in major forex pairs has been more positive today, but this is also helping GBP to pick up.
This is leaving the USD under selling pressure once more.
GBP finding buyers again
GBP has been struggling in recent days, but the increased likelihood of a Bank of England rate hike is lending GBP some support once more.
GBP/USD rebounding from support
We talked about Cable yesterday from a USD perspective. A near-term USD rebound has dragged GBP/USD back to important support.
However, with the wage growth data today helping to support GBP there is a rebound that is protecting the key support at 1.2345.
Technically, this is sustaining the medium-term positive outlook on Cable.
- Holding support at 1.2345 maintains the run of higher lows.
- The daily RSI remaining above 50 helps to sustain positive momentum.
However, the near-term outlook remains mixed to slightly corrective with the key resistance at 1.2545 high from the bearish engulfing candle.
Moving back above 1.2445 would improve the outlook but the bulls need a breakout above 1.2545.
GBP/JPY breaking higher
Another pair moving in a GBP-positive direction is GBP/JPY.
This morning’s move higher is adding to the strong bullish outlook.
- The pair has been in an uptrend channel throughout 2023 and has recently broken above the resistance at 166.00.
- The daily RSI has moved into the high 60s and is at a 7-month high.
A close above 166.85 would be bullish and open a test of 169.25.
However, there is also a degree of caution at the top of the uptrend channel.
The near-term importance of support at 165.40 is growing.
Support and resistance levels for Forex, Commodities, and Futures/Indices
|Brent Crude Oil
|S&P 500 futures
|FTSE 100 Index
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