The Fed has one more reason to tighten monetary policy as the unemployment rate in the United States fell to 4.8% from 5.2%.
Notably, analysts had predicted the indicator to decline only to 5.1%. So, the actual reading significantly exceeded expectations and surprised market participants.
Naturally, the US dollar was projected to rise considerably amid upbeat data. However, it did not happen. It continued to stand still.
Apart from the unemployment figures, traders were also puzzled by the number of new jobs created in the nonagricultural sector. The economy added only 194,000 versus the projected reading of 475,000.
This is why the unemployment rate is unlikely to fall significantly soon due to a slight increase in new jobs. It may also limit further strengthening of the US dollar.
In addition, there is a likelihood of a rise in the unemployment rate. To maintain more or less the same unemployment level, the US needs to create from 200 to 250,000 new jobs every month.
However, now, the unemployment rate is even below the Fed's target level of 5.0%. Its further decline threatens to overheat the labor market, which may trigger a sharp decline in investment, bankruptcy of companies, and mass layoffs.
If the unemployment rate is too low, there is a shortage of workers in the labor market. Thus, companies are forced to raise wages, which may adversely affect their profit.
In this case, firms refrain from making investments in the development or expansion as their profit is unlikely to grow. The economy should add a moderate number of new jobs every month, bringing down the unemployment rate.
Yet, the most important thing is that the Fed is highly likely to start tapering the quantitative easing program following this data. In the foreseeable future, the US dollar will inevitably resume its upward movement.
The GBP/USD pair is still in the corrective phase. The levels of 1.3620/1.3650 act as a resistance area. Judging by technical indicators, there are lots of signs of the formation of an ascending triangle. If so, the pair is likely to break through the resistance area.
On the 4H chart, the RSI indicator is moving along the 50 line. This signals stagnation, which is confirmed on the chart by the movement of the quote along the resistance area.
Despite the corrective phase, bearish sentiment is still strong in the market. This is indicated by a steady downward trend from early June.
Outlook
If the price consolidates above 1.3680 on the 4H chart, it will likely break through the resistance area. If this scenario comes true, the correction will extend to 1.3750.
Alternatively, the price may rebound from the resistance area of 1.3620/1.3650. This will lead to the completion of the correction.
Complex indicator analysis gives a long signal on short-term and intraday charts amid the price corrective movement. Technical indicators give a short signal in the medium term.