GBP/USD bears approach 1.1000 with eyes on UK employment data, BOE’s Bailey
- GBP/USD dribbles around one-week low as bears keep the reins.
- BOE’s latest bond actions, challenges for Bailey highlight today’s UK jobs report as the key catalyst.
- Risk aversion, firmer yields and downbeat expectations from British statistics keep sellers hopeful.
GBP/USD holds lower ground near 1.1035 during a five-day downtrend as bears await the UK’s monthly job figures during early Tuesday. In addition to the pre-data anxiety, a hawkish bias for the US Federal Reserve (Fed) and the upbeat Treasury yields also weigh on the Cable pair, via a firmer US dollar Index (DXY).
That said, the CME’s FedWatch Tool signals a 78.4% chance of the Fed’s 75 bps rate hike in November. In doing so, the market players pay little attention to the mixed comments from Federal Reserve Vice Chair Lael Brainard and Chicago Fed President Charles Evans.
“US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).
The US 30-year Treasury yields rise to a fresh high since January 2014 whereas the 10-year counterpart poke the 4.0% threshold amid the market’s rush for risk safety and the hawkish Fed bets.
The risk aversion could also be linked to the recently fierce Russia-Ukraine tussles and the Sino-American tensions. While portraying the mood, the S&P 500 Futures that drop 0.50% as bears lean towards the monthly low.
At home, “British finance minister Kwasi Kwarteng, who last month sparked a bond market rout with unfunded tax cuts, sought to reassure investors on Monday by bringing forward a budget announcement and naming a Treasury insider to run the department,” said Reuters. The news also mentioned, “Under pressure to rebuild investor confidence, Kwarteng said he would reveal longer-term tax and spending plans and independent economic forecasts on Oct. 31, more than three weeks earlier than previously scheduled.” Additionally, the BOE doubled the size of maximum debt buybacks from 5 billion pounds to 10 billion pounds to placate investors but failed to improve the market’s bias for the British economy and political conditions.
Moving on, today’s UK employment data becomes more important considering the Bank of England’s (BOE) latest efforts to keep the British economy in its liquid stage, coupled with the existence of BOE Governor Andrew Bailey’s speech at the Institute of International Finance Annual Membership Meeting in Washington. Also highlighting today’s employment numbers is the cable’s weakness towards the record low marked in the last month.
The UK labor market report is expected to show that the average weekly earnings, including bonuses, in the three months to August, improved to 5.9% while ex-bonuses, the wages are seen rising to 5.3%, from 5.5% and 5.2% respective priors. Further, the ILO Unemployment Rate is likely to remain intact at 3.6% for the three months ending in August. It’s worth noting that the Claimant Count Change figures are expected to deteriorate to -11.4K versus 6.3K previous readouts.
Given the downbeat expectations from the scheduled British data, coupled with the risk aversion and hawkish Fed bets, the GBP/USD pair is likely to remain weaker going forward.
Technical analysis
A clear downside break of the two-week-old ascending support line, now resistance near 1.1420, directs GBP/USD bears towards the tops marked during late September around 1.0930-15.