UK Jobs Outlook: Win-win situation for GBP/USD amid BOE forecasts, Farage


  • The UK jobs report for September is set to show ongoing strength.
  • Concerns from the BOE set a low bar for an upside surprise. 
  • GBP/USD has room to advance, also thanks to optimism about the elections.

Signs of a turn in the labor market – that warning by two members of the Bank of England will now come to the test. And those words by Michael Saunders and Jonathan Haskell – who dissented in favor of cutting rates – may determine sterling's reaction to the upcoming jobs report.

Market expectations and BOE conditioning

The jobless rate stood at 3.9% as of August – above the low of 3.8% seen earlier this year – but an excellent figure that is of envy to other countries. Economists expect the same result to be repeated in September. 

The chart below is showing how unemployment hit historic lows – below pre-crisis levels:

UK unemployment rate 2008 2019 below pre crisis levels

Average Earnings – which have been gaining traction in impacting the pound in recent years – were at 3.8% yearly growth in August. Also, here, a repeat is on the cards for September. With inflation standing at 1.7% that month, that would represent a real wage rise of 2.2% yearly – upbeat as well. 

The UK labor market is booming and pushing salaries higher. 

Is this about to change? The UK economy expanded by 0.3% in the third quarter and 1% on an annual basis – both figures below expectations and reflecting meager growth. Brexit uncertainty may have resulted not only in slower growth – but also in disappointing employment data

An increase in the unemployment rate to 4% or deceleration of wage growth below 3.8% may, therefore, push the pound lower. However, after the warnings from the central banks – real expectations are probably more downbeat.

GBP/USD positioning and scenarios for the jobs report

Britain's jobs report is published against the backdrop of a pound-positive political development. Nigel Farage, leader of the Brexit Party, has announced that his new outfit will refrain from fielding candidates in seats won by Conservatives.

That may make it easier for Prime Minister Boris Johnson to secure an absolute majority. Investors prefer the certainty of Johnson's Brexit deal to the hard-left policies of Jeremy Corbyn, Labour leader. 

1) As expected: Farage's dramatic decision joins lower BOE expectations in setting the stage for further GBP/USD advances. It would probably take an "as expected" – and it this case "unchanged" outcome to send the sterling higher. That is the base-case scenario.

2) Small disappointment: As mentioned earlier, a minor disappointment is probably priced into the pound. A minor miss of 0.1% or even 0.2.% in either or both key metrics may trigger choppy trading, but no substantial move in GBP/USD

3) Considerable crash: To guarantee a slump in sterling, a miss of 0.3% is probably needed – the unemployment rate leaping to 4.2% and/or wage growth slowing to 3.5%. And that is highly unlikely

4) Minor beat: Cable has room to rally upon a minor beat – a return of the unemployment rate to 3.8% or earnings advancing to 3.9%. That would defy the BOE's worries and also push the pound higher within the trend.

Conclusion

GBP/USD is entering the jobs report with upbeat political developments and downbeat expectations. It has room to fall only in one scenario out of four. 

More GBP/USD Forecast: Levels to watch after Farage's fireworks, outlook bullish

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.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

AUD/USD advances above 0.6950 as risk-on mood dominates

Following a bearish opening gap, AUD/USD has recovered ground and trades above 0.6950, tracking the bounce in the S&P 500 futures. The bulls shrug off US-China tensions and the worsening coronavirus situation in the US and Australia. 

AUD/USD News

USD/JPY stays depressed below 107.00 within descending triangle

USD/JPY is trading in the red on Monday near 106.80. The pair has carved out a big descending triangle over the past 3.5-months. At press time, the lower end of the triangle is located at 106.10, and resistance is seen at 108.93. 

USD/JPY News

Gold hovers above $1,800 as dollar drops despite lingering coronavirus concerns

Gold rises 0.30% as the dollar index drops 0.20%. The US stock futures rise, keeping the safe-haven US dollar under pressure. The US coronavirus cases tally crosses the 3.3 million mark. 

Gold News

Data, earnings, central banks and virus cases in focus

Risk appetite took a turn for the better at the end of last week despite an array of the usual suspect risk factors (accelerating Covid-19 cases, US-China tensions, rich valuations). 

Read more

WTI: 200-HMA probes bears above $40.00

WTI stays pressured beyond $40.00 despite multiple bounces off 200-HMA. MACD conditions suggest bears rolling up their sleeves for entry. Bulls will have multiple upside barriers beyond $41.00.

Oil News

Forex Majors

Cryptocurrencies

Signatures