Forex Trading Guide: U.K. Employment Report

It’s a make-or-break week for the pound, as the U.K. has a couple of top-tier events lined up for tomorrow: the July jobs release and the BOE inflation report. In this edition of my Forex Trading Guide, I’ll be focusing on the employment report and what it could mean for the pound. Let’s go through our usual routine, shall we?

What is this report all about?

The U.K. jobs report is composed of two main components: the claimant count change and the jobless rate.

The claimant count change is the number of people claiming unemployment-related benefits every month. A number that is lower than the previous figure or lower than the estimated count means there’s a fewer number of unemployed people, which is better for the U.K. economy.

The unemployment rate measures the number of unemployed workers as a percentage of the U.K. labor force. Similar to the claimant count, a lower figure compared to the previous one or the estimate is good for the U.K. economy.

What happened last time?

For the month of June, the U.K. economy printed a stronger than expected jobs report as the number of claimants dropped by 36.3K during the period. This followed the better than expected jobs report for May, which showed a 32.8K decline in claimants.

The unemployment rate improved from 6.6% to 6.5% in June as expected, yet market participants appeared to dwell on the lack of wage growth at that time. Average wages posted a mere 0.7% increase, far less than the pace of inflation. This concern was echoed by BOE policymakers in the latest MPC meeting minutes, which hinted that central bank officials might pay closer attention to wage growth in the next jobs releases.

What is expected for the upcoming release?

For the month of July, the U.K. claimant count is expected to fall by 29.7K, a slower pace of decrease compared to the previous months’ figures. The jobless rate is slated to show another improvement from 6.5% to 6.4%.

Bear in mind though that labor market trends appear to be slowing down in the past months, as I’ve discussed in my jobs data roundup article yesterday. This means that there could be a chance for a downside surprise, as U.K. manufacturing reports have also been reflecting a downturn for July.

Data on average wages might also steal the spotlight, as BOE policymakers and market watchers are keen to see if further weaknesses in spending are to be expected.

How might the pound react?

As seen in previous jobs releases, GBP/USD tends to consolidate hours before the report is released then reacts strongly to headline figures.

GBP/USD 15-min Forex Chart

Based on the price reaction to the previous jobs release, there is enough follow through for the next few hours, as the rally lasted by a little over a hundred pips until the start of the U.S. trading session.

If you’re not a fan of volatile forex price action, then it might be better to sit on the sidelines and just watch the event play out. Make sure you get your hands on the details of the jobs release though, as these could determine the longer-term movement of the pound.