British Pound nears the 1.3400 area after higher UK unemployment figures

GBP/USD drifts closer to 1.3400 on Tuesday from 1.3450 highs on Monday.
UK Unemployment Rate increased against expectations, and wage inflation grew in March.
A frail hope of a peace deal in Iran is keeping the US Dollar subdued on Tuesday.

Guillermo Alcala FXStreet

The British Pound (GBP) drifts further from Monday’s highs near 1.3450 against the US Dollar (USD) on Tuesday, reaching session lows a few pips above 1.3400 at the time of writing. UK unemployment figures confirmed that the labour market deteriorated in March, adding negative pressure on the Sterling.

Data released by the UK Office for National Statistics on Tuesday revealed that the Unemployment Rate rose to 5% in the three months to March, against market expectations of a steady 4.9%. National Statistics also reported a 26.5K increase in jobless benefit claimants in April, from 4.9K in March.

Beyond that, Average Earnings Including Bonus accelerated to a 4.1% yearly rate in the three months to March from 3.9% in the previous month, increasing inflationary pressures in the UK economy and complicating the Bank of England’s (BoE) monetary policy-setting activity.

The uncertain political scenario in the UK remains another source of pressure for the British Pound, with Prime Minister Keir Starmer fighting for survival after the Labour Party’s defeat in the local elections. Great Manchester mayor Andy Burnham, the best-positioned candidate to replace him, has been easing investors' concerns about fiscal slippage, assuring his commitment to abide by the government’s borrowing limits.

In the US, the calendar is thin during the first half of the week, but growing hopes of a peace deal in Iran have pushed Oil prices and US yields down from recent highs, which is weighing on the safe-haven US Dollar. US President Trump said on Monday that he paused an attack amid advances on a nuclear deal, which keeps hopes of a swift end to the war alive.

(This story was corrected on May 19 at 06:40 GMT to say that the GBP reached highs near 1.3450 on Monday, and not 1.3440, and that the Unemployment Rate covers the three months to March and not last month, as previously stated.)

Economic Indicator

ILO Unemployment Rate (3M)

The ILO Unemployment Rate released by the UK Office for National Statistics is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the UK Economy. If the rate goes up, it indicates a lack of expansion within the UK labor market. As a result, a rise leads to a weakening of the UK economy. Generally, a decrease of the figure is seen as bullish for the Pound Sterling (GBP), while an increase is seen as bearish.

Why it matters to traders?

The Unemployment Rate is the broadest indicator of Britain’s labor market. The figure is highlighted by the broad media, beyond the financial sector, giving the publication a more significant impact despite its late publication. It is released around six weeks after the month ends. While the Bank of England is tasked with maintaining price stability, there is a substantial inverse correlation between unemployment and inflation. A higher than expected figure tends to be GBP-bearish.

Economic Indicator

Claimant Count Change

The Claimant Count Change released by the UK Office for National Statistics presents the change in the number of unemployed people in the UK claiming benefits. There is a tendency for the metric to influence GBP volatility. Usually, a rise in the indicator has negative implications for consumer spending and economic growth. Generally, a high reading is seen as bearish for the Pound Sterling (GBP), while a low reading is seen as bullish.

Why it matters to traders?

The change in the number of those claiming jobless benefits is an early gauge of the UK’s labor market. The figures are released for the previous month, contrary to the Unemployment Rate, which is for the prior one. This release is scheduled around the middle of the month. An increase in applications is a sign of a worsening economic situation and implies looser monetary policy, while a decrease indicates improving conditions. A higher-than-expected outcome tends to be GBP-bearish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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