UK Claimant Count Climbs by 24.5K in June, Worrisome for the Pound
In the UK we saw jobless benefit claims rise by a larger than expected amount in June, up 24.5K compared to expectations of a 15.1K increase. The figure for May was also revised upward to 22.5K from the originally reported 19.6K.
The ILO unemployment rate for May (it trails the jobless claims by a month) remained at 7.7%.
We previewed this release here: Anticipating UK Employment Data in the Context of Bearish GBP/USD
Why Was This Release Important:
The importance of this report is that the UK economy is showing a fragile recovery amid government austerity measures – which includes cutting the government payrolls by 300K jobs. A deteriorating labor market will only add strain the already weak domestic demand, which puts pressure on businesses. With trade not being able to give the economy the boost the government and central bank may have been relying on, the questions becomes if austerity measures – while sending a positive sign to fixed income markets and credit rating agencies – if it may be too much and can undermine the country’s recovery.
Impact on the Pound:
While the Pound managed to hold its own against the USD in today’s session on the back of better overall risk sentiment in currency markets, it weakened against its rival European higher yielder the EUR, and against the higher yielding commodity currency trio of the AUD, NZD, and CAD. All of those central banks are in a stronger position to raise interest rates before the Bank of England
Here is a 4-hour chart of the EUR/GBP and we see that the pair found some support and managed to pare some of its losses from yesterday following the report.
- Overall, this pair still looks bearish, and we just managed to test the 21-ema (red) as resistance and that held.
- Today’s high so far (as of 7:50AM ET) was also the 38.2% retracement of the downward swing from late last week from 0.90 to 0.8750.
- It’s still a shallow correction, and we would have to see this pair climb though the 50% retracement as well as the 200-ema (in gray) in order to consider a bullish scenario.
GBP/AUD
Here is a 1-hour chart look at the GBP/AUD, in which we see the Pound weakening to the 1.4885 area following the weaker than expected jobs report.
- The pair tested and bounced up off the 61.8% retracement of our swing from 1.4780 to 1.5050.
- We have moved through all 3 ema’s in this 1-hour view, though they are not in a full bearish alignment with the shorter term 21 below the medium term 55, which is below the 200 ema. Instead we have a confluence of the MA’s in this timeframe, and they may act as resistance as this pair sees a pullback from its lows.
With the weaker data from the UK and some positive data from China offsetting fears of a hard landing, this pair should move in favor of the AUD as long as risk sentiment can hold on to some sort of stability.
Overall, today’s data will continue to put the Bank of England in a dovish stance and can further undermine the GBP against its key rivals.
What do you think? Will the GBP fall further in the wake of another sign of fragility in the recovery? Subscribe and become a member to share your views and join live discussions as well as webinars about the markets.
Nick Nasad
Chief Market Analyst
FXTimes
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