GBP/USD Forecast: UK wages rose to a decade high pushing Sterling above 1.3200
|- The UK unemployment rate remains at 4.0% in three months to August.
- The UK regular pay rises 3.1% y/y while total pay rose 2.7% y/y, both figures exceeding the market expectations.
- The UK claimant count rises 18.5K in September, missing the market estimates of 10.0K.
- Sterling rises above 1.3200 after the UK wage growth data exceeded expectations.
The GBP/USD is trading up 0.35% at around 1.3200 level against the US Dollar after the wage growth data rose above expectations in the September labor market report in the UK while the unemployment rate remained stuck to a four-decade low of 4.0%. Earlier on Tuesday the GBP/USD was pushed higher on comments from German EU minister Michael Roth who said that “we will get the Brexit deal but we must protect EU interests.”
The UK labor market report saw a positive Sterling reaction to the UK wage growth data, as both regular and total pay rose above expectations with regular pay rise marking the highest growth rate since October to December 2008.
The economics of the rising wages is straightforward with rising wages expected to drive aggregate demand higher and pushing on prices to rise. Higher prices mean higher inflation and that has a clear interest rate policy implication with the Bank of England hiking the Bank rate in response making Sterling more attractive currency market investment.
Technically, the GBP/USD closed to gap on the downside after opening at 1.3085 on Monday and rose to 1.3200 level after the UK wages above expectations in three months to August. The build-up of Brexit uncertainty is likely to weigh on Sterling further as no deal is expected to be reached on Brexit summit on October 17-18.
The technical oscillators are pointing upwards on the 1-hour chart, but the GBP/USD broke from the upward trending channel last week and now it trades in a parallel trend. On the downside, the GBP/USD needs to break the confluence resistance of 1.3103 representing a 100-day moving average and the 38.2% Fibonacci retracement of a move from 1.4377 to 1.2662 to move lower targeting 1.3030 and 1.2970 further down. On the upside the GBP/USD the immediate target is 1.3230-1.3250 last week’s high.
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