UK jobs report preview: GBP/USD reaction will be telling for Brexit-related developments

The UK publishes its jobs data on Tuesday, March 19th, at 9:30 GMT. The British labor market is looking good, and that is unlikely to change. The unemployment rate stood at a low level of 4% in December and is expected to remain unchanged in the report for January.

The Average Earnings, or wages, are set to decelerate from a fast level of 3.4% in December to 3.2% in January. In any case, salaries are rising faster than inflation, a phenomenon that was not always the case in recent years. Excluding bonuses, income from work is projected to increase by 3.4% for another month. The latest headline inflation number was 1.9% YoY in January. 

The data are indeed encouraging, and the Bank of England would like to raise interest rates to curb potential inflation that is set to stem from rising salaries. 

Yet these are not normal times.

Everybody knows that the BOE is ready to raise rates but is paralyzed due to Brexit.

So, a slightly faster pace of wage growth or a somewhat slower one will be notable but are unlikely to move the pound too much. At the time of writing, the UK Parliament may vote on Brexit once again May's Brexit deal, and the high levels of volatility will be reserved for the vote. 

Interpreting the reaction

However, the jobs report is still relevant and will likely have a short-lived, minimal response to the wages data.

And this reaction to the jobs report can tell us where the wind is blowing: if traders are biased in favor of the pound or against it. This bias will be critical for the reaction on any Brexit-related news. We have seen how GBP/USD reacts to rumors and does not always await official votes in Parliament. 

Here are several scenarios:

• If the data is weaker than projected and the pound ignores it, we can assume that the trend is pound-positive.
• If the data is better than expected and the pound ignores it, we can assume that the trend is pound-negative.
• If the data meets expectations and the pound rises, the trend is likely pound-negative.
• If the data meets expectations and the pound falls, the trend is likely pound-negative. 
• If the data is weaker and the pound slides, or if the data beats and the pound rises, we cannot reach any conclusions.

How can we use it? If the bias is pound-positive, any optimistic news about Brexit can send it shooting higher while negative news may be ignored. And if the bias is negative, we can expect the pound to plummet on any piece of adverse news and ignore positive developments.

Keep an eye on claims

The Claimant Count Change provides more up-to-date data. The previous report was for January and ti showed an increase of 14.2K. Despite a low unemployment rate, this figure, known elsewhere as jobless claims, has been on the rise.

The upcoming publication is for February, and an increase of 2.7K is on the cards. Recurring increases in jobless claims will eventually lead to rises in unemployment. Markets have ignored it so far and will likely ignore it now, as Brexit overshadows everything. Nevertheless, if you are trading Sterling for the long-run, it is something to keep an eye for.

Conclusion

With every Brexit rumor moving the pound, the jobs report will likely have a short-lived and limited impact on GBP/USD. However, this reaction can be useful in exposing the bias in GBP/USD, something that will be useful when significant Brexit news breaks.

More: All the Brexit developments in one place