UK employment preview: Three reasons why GBP/USD could bounce even if wage growth slows

  • Investors may dismiss weak figures in December and attribute them to political chaos.
  • Low expectations make room for an upside surprise after last month's positive one.
  • The trend is favorable for sterling amid Brexit and fiscal stimulus speculation.

Lower wages are bad news for workers and usually also for the pound – but these are abnormal times, and sterling may shine in response to the UK's December jobs report. The focus is on wage growth 

Reaction to critical data in financial markets depends on expectations and positioning and not on the hard data alone.

Here are three reasons why GBP/USD may react positively to the data.

1) Pre "Boris-bounce" figures

The Average Earnings figures – as well as the Unemployment Rate, which is expected to stay at 3.8% – are for December 2019. Back then, the economy still suffered a high dose of Brexit uncertainty. Prime Minister Boris Johnson assumed office in July and oversaw turbulent months in which he struggled with the House of Commons and with the EU.

After striking a deal with Brussels in mid-October, he failed to move it in parliament and called elections. The decisive victory – and a leap in certainty – came in mid-December.

Since then, business and consumer surveys have jumped with the all-important Services Purchasing Managers' Index returning to robust growth in January. Yet while sentiment enjoyed this "Boris bounce," employment decisions move more slowly. 

Therefore, even if figures miss expectations, markets may shrug them off as belonging to the past. We have seen a similar reaction with Gross Domestic Product figures for the fourth quarter. The economy stagnated – a disappointing outcome in absolute terms – but the pound soldiered on.

2) Low expectations 

As the economic calendar is showing, economists expect Average Earnings to decelerate. When including bonuses, estimates stand at a slowdown from 3.2% to 3% yearly. Excluding extra pay, forecasts are for a drop from 3.4% to 3.3%. 

Lower expectations make an upside surprise easier to accomplish. Moreover, both figures surprised in the previous report for November – and this can happen again. During the 11 months of 2019 to which data is available, wages, including bonuses, beat expectations five times, and missed projections four times. 

UK wage growth development 2015 2019

3) Bullish bias

The UK has already left the EU, but Brexit is far from being resolved. Most rights and obligations apply during the post-Brexit transition period, which expires through year-end. Negotiations about future relations kick off in March, and both sides have laid down their positions – offering stark visions.

At first, sterling dipped in reaction to every threat, but it seems that investors are seeing through the posturing and waiting for leaders to cut deals behind closed doors. The latest comment from France's foreign minister, Jean Yves le Drian, that the EU and the UK will "rip each other" in talks – has left no marks on the pound/dollar chart.

On the other hand, sterling enjoyed a "reshuffle rally." GBP/USD leaped after Johnson forced the fiscally conservative Sajid Javid out of his job as Chancellor and named Rishi Sunak instead. The move paves the way for deficit spending on infrastructure – and markets cheered. The Bank of England could feel less need to act to stimulate the economy.

Overall, the pound is ignoring adverse news and reacting positively to good ones – showing its strength.

Overall, GBP/USD has room to rise.

Three scenarios

1) Within expectations or mildly below: In this scenario, Average Hourly Earnings stand at 3% or 2.9%, and GBP/USD reacts positively due to all the reasons mentioned above. The probability is high, especially for figures to meet expectations.

2) Above expectations: If salaries dipped to 3.1%, which has the medium possibility or even held up at 3.3% – lower chances – GBP/USD might jump to higher ground. If the starting point before the "Boris bounce" is upbeat, sterling may shine. 

3) Well below expectations: If wage growth decelerates to 2.8% or below, that would already be significant and could push the pound lower. A considerable miss has a low probability. 


Overall, the timing of the figures, low expectations, and the current positive trend in GBP/USD create an upside bias, which may see the pound rising even in case of a small miss.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content

Recommended Content

Editors’ Picks

AUD/USD posts modest gains above 0.6600 amid weak UoM Consumer Sentiment data

AUD/USD posts modest gains above 0.6600 amid weak UoM Consumer Sentiment data

The AUD/USD pair snaps the two-day losing streak near 0.6615 amid the consolidation of the US Dollar in Monday’s early Asian session. Meanwhile, the US Dollar Index hovers around near 105.50 after retracing from its highest level since early May near 105.80.


EUR/USD: Central banks’ decisions will keep taking their toll

EUR/USD: Central banks’ decisions will keep taking their toll

The EUR/USD pair slid below the 1.0700 mark for the first time in over a month on Friday, as the US Dollar surged on the back of risk aversion. The dismal mood prevailed throughout the week, with a short-lived exception on Wednesday when softer-than-anticipated United States inflation brought a breath of fresh air.


Gold attracts some sellers below $2,350, eyes on Eurozone political concerns

Gold attracts some sellers below $2,350, eyes on Eurozone political concerns

Gold price trades on a softer note near $2,325 during the early Asian trading hours on Monday. The speculation that US interest rates will stay higher for longer, with the median projection from Federal Reserve officials calling for one interest rate cut this year, has lifted the Greenback broadly.

Gold News

Bitcoin active addresses hit lowest level in five years, BTC ranges below $67,000

Bitcoin active addresses hit lowest level in five years, BTC ranges below $67,000

Bitcoin, the largest asset by market capitalization, has noted a decline in its active address count per data from Glassnode. A decline in active addresses is typical at a time during a surge in Bitcoin transaction fees.

Read more

Week ahead: RBA, SNB and BoE next to decide, CPI and PMI data also on tap

Week ahead: RBA, SNB and BoE next to decide, CPI and PMI data also on tap

It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.

Read more