British Pound trades lower against US Dollar after soft UK employment data

The British Pound is under pressure against the US Dollar due to weak UK employment data.
Investors await the UK CPI data for July and the FOMC minutes of the July policy meeting.
The Fed is expected to leave interest rates unchanged in the September policy meeting.

Sagar Dua FXStreet

The British Pound (GBP) is down 0.1% to near 1.3530 against the US Dollar (USD) during the European trading session on Tuesday. The British currency comes under pressure after the release of the United Kingdom (UK) employment data for three months ending June.

UK labour data underline cool jobs market and limited BoE hike impetus

Analysts at ING characterise the latest UK labour figures as offering “nothing particularly earth-shattering,” but still reinforcing a picture of a cooling jobs market. They note that “payrolled employment is down a touch,” while cautioning that this headline masks “big differences between government (which is still actively hiring), consumer services (where job numbers are consistently falling and the pace of decline is getting worse) and the remaining private sector, which is flatlining.”

ING also points out that “the unemployment rate is up a touch,” though they stress that the Office for National Statistics has already flagged “temporary sampling issues with the labour force survey underpinning it (on top of the well-publicised existing problems), so I'd take that data with a pinch of salt.” Even allowing for those statistical caveats, ING concludes that “the basic story is the same – the jobs market remains cool, and wage pressures are fairly minimal.” In their view, this backdrop “suggests little impetus for the Bank of England (BoE) to hike rates this year.”

Going forward, investors will focus on the UK Consumer Price Index (CPI) data for July, which will be released on Wednesday. Investors will pay close attention to UK inflation to get fresh cues regarding the BoE’s monetary policy outlook.

Meanwhile, the US Dollar holds a slight recovery move, with the US Dollar Index (DXY) trading slightly higher to near 99.65. The USD Index is less likely to hold the recovery move from the fresh two-month high of 99.30 posted on Monday, as traders don’t expect the Federal Reserve (Fed) to deliver an interest rate hike in the September policy meeting.

Going forward, investors will focus on the Federal Open Market Committee (FOMC) minutes of the July policy meeting, which will be released on Wednesday.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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