Talking Points:- The British Pound gained 0.5% versus the US Dollar after today’s UK labor data.
- The UK unemployment rate unexpectedly fell to 5.5%.
- Average Earnings Index rose by 2.9%.
The British pound gained half-of-one percent versus its US counterpart after today's UK employment data, providing more evidence that the British labor market is in good health. The unemployment rate unexpectedly fell to 5.5% in July, below the 5.6% expected, with the country adding 42k jobs, subsequently raising the number of people employed to 31.1 million.
While economists were expecting the Jobless Claims to drop by -5.0K in August, the actual figure came in below the forecast with a rise of +1.2K (the higher the claims figure, the worse shape the labor market is in). July's average earnings index rose by +2.9%, above the expected 2.5%. In aggregate, today’s data paints a positive picture for the UK labor market.
Last week, the Bank of England's Monetary Policy Committee voted to keep rates on hold, while commenting that slowing employment data might imply that labor demand had plateaued, which could keep pay growth on hold. Data today coming in above forecasts indicate an improvement in the labor market that could help the BoE achieve its +2% medium-term inflation target.
UK gilts yields climbed after the data were released, suggesting that traders were taking positions favorable to a more hawkish BoE sooner than previously anticipated, which in turn helped support the British pound and GBP/USD specifically.
Ahead of the data, GBP/USD was trading just below $1.5345, having come off of the session lows of $1.5330. After the data, on the back of rising gilt yields, GBP/USD climbed as high as $1.5417 and was trading at $1.5409 at the time this report was written.