GBP/USD pares intraday losses, remains below mid-1.3800s

• GBP/USD witnessed some selling in reaction to an unexpected rise in the UK jobless rate.
• A sharp fall in the Claimant Count Change and strong wage growth data helped limit losses.
• Sliding US bond yields, Powell’s dovish remarks undermined the USD and extended support.
• COVID-19 jitters acted as a tailwind for the safe-haven USD and might cap gains for the pair.

The GBP/USD pair maintained its offered tone through the first half of the European session, albeit has recovered a few pips from daily lows and was last seen trading just below mid-1.3800s.

The headline unemployment rate in the UK unexpectedly edged higher to 4.8% during the three months to May from 4.7% previous and prompted some selling around the GBP/USD pair on Thursday. The slight disappointment, however, was largely offset by a massive fall in the claimant count change and stronger wage growth data.

In fact, the number of people claiming unemployment-related benefits declined sharply by 114.8K in June. Adding to this, the previous month's reading was also revised to show a drop of 151.4K as against -92.6K reported previously. Additional details showed the fastest wage growth in the year to May since records began in 2000.

The data painted a picture of a roaring jobs market in the UK and growing inflationary pressure from rising wages, which was reaffirmed by Wednesday's hotter-than-expected UK CPI report. This, in turn, fueled speculations that the BoE will have to consider scaling back its huge stimulus program sooner and extended some support to the sterling.

Apart from this, a subdued US dollar price action assisted the GBP/USD pair to once again attract some dip-buying in the vicinity of the 1.3800 round-figure mark. The greenback was weighed down by an extension of the previous day's sharp decline in the US Treasury bond yields and the Fed Chair Jerome Powell's dovish testimony.

During the semi-annual congressional testimony, Powell reiterated that the spike in inflation was only temporary. His remarks overshadowed this week's inflation figures, which showed that the US producer prices posted their biggest annual increase in nearly 11 years and consumer prices jumped to the highest level in more than 13 years in June.

That said, a generally softer risk tone – concerns about the spread of the highly contagious Delta variant of the coronavirus – helped limit any deeper losses for the safe-haven USD. This, in turn, held traders from placing any aggressive bullish bets around the GBP/USD pair and capped the upside, at least for the time being.

Market participants now look forward to the US economic docket, featuring the releases of the usual Initial Weekly Jobless Claims and Philly Fed Manufacturing Index. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics. Traders will further take cues from Powell's second day of congressional testimony to grab some short-term opportunities around the GBP/USD pair.

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