GBP/USD drops below 1.3400 ahead of UK labor data

GBP/USD declines as traders adopt caution ahead of the United Kingdom’s employment data.
The US Dollar appreciates amid rising odds of the Fed maintaining its interest rates in July.
The recent UK inflation data boosts the chances of the BoE maintaining a restrictive monetary policy stance.

Akhtar Faruqui FXStreet

GBP/USD loses ground after registering gains in the previous session, trading around 1.3390 during the Asian hours on Thursday. Traders are awaiting the United Kingdom (UK) jobs report, which includes June’s Claimant Count Change and ILO Unemployment Rate for the three months to May, due later in the day.

The GBP/USD pair depreciates as the US Dollar (USD) gains ground due to rising odds of the Federal Reserve (Fed) maintaining its benchmark overnight interest rate unchanged in the 4.25%-4.50% range at its July policy meeting, driven by the hotter-than-expected June inflation figures from the United States (US).

Dallas Fed President Lorie Logan said on Tuesday that the Fed will probably need to leave interest rates where they are for a while longer to ensure inflation stays low in the face of upward pressure from the Trump administration's tariffs. Moreover, New York Fed President John Williams said late Wednesday that monetary policy is in the right place to allow the Fed to monitor the economy before taking its next decision.

The US Producer Price Index (PPI) was unexpectedly unchanged in June, against the market consensus of a 0.2% rise. Meanwhile, the core PPI rose by 2.6% YoY versus 3.0% prior, softer than the 2.7% expected. Traders will keep an eye on the US Retail Sales for June, followed by weekly Initial Jobless Claims and Philly Fed Manufacturing Index due later on Thursday.

The latest Fed Beige Book shows that while overall business activity remains healthy and inflation pressures are relatively subdued, underlying cost pressures are building, and business operators remain cautious.

The downside of the GBP/USD pair could be restrained as the hotter-than-expected UK inflation data reinforce the likelihood of the Bank of England (BoE) maintaining a restrictive monetary policy stance. However, the BoE may adopt a balancing act while discussing interest rates in the August monetary policy meeting amid escalating price pressures and cooling labor market conditions.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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