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UK wages excluding bonuses soared to the highest growth rate since 2001, pushing unemployment to 4.2%. The GBP/USD pair surges following Monday’s session, which portrayed a ‘hammer’ formation, suggesting that further upside is expected.
UK jobs data overshadowed positive economic data from the United States, as wages grew above estimates, adding to the Bank of England’s (BoE) inflation pressures. Hence, the GBP/USD trades at 1.2705, above its opening price by 0.21%.
The Office for National Statistics revealed that wages excluding bonuses rose 7.8% YoY in the three months to June. The same report highlighted the Unemployment Rate climbed to 4.2% from 4%.
Traders brace for Wednesday’s inflation report. Any upside surprise could increase BoE’s chances of raising rates. Money market traders are fully pricing in a 25-basis point hike at its September meeting, with around a 12% chance they lift rates by a larger size of 50 basis points.
On the US front, US Retail Sales in the US exceeded estimates of 0.4% MoM, with July sales growing by 0.7%, while excluding Autos, also called core retail sales, jumped 1%, smashing forecasts of 0.4%. Core Retail Sales correspond most closely with the Gross Domestic Product (GDP) consumer spending component.
The report triggered a revision of US growth prospects, with Goldman Sachs raising Q3’s Gross Domestic Product (GDP) to a 2.2% annualized rate. Today’s data was computed by Atlanta’s Fed GDPNow model, which forecasts GDP expectations, jumping to 5% from 4.1% foreseen on August 8.
Meanwhile, bets for a pause on hikes by the Federal Reserve (Fed) in September remain intact at 89% after the data, while for November, it stood above 30% chance. Other data from the US Department of Labor showed that Import and Export Prices rose above estimates. At the same time, the New York Federal Reserve revealed its Manufacturing Index plunged to -19, exceeding projections of -1, after business conditions improved in July.
Neil Kashkari, the president of the Minnesota Federal Reserve, went too far when he said that inflation is still too high despite the fact that he is pleased with its progress and is unsure of whether the Fed has done enough or has to do more. He noted that the resiliency of the economy had surprised US central bank officials.
In case UK inflation turns out to be greater than anticipated, the GBP/USD could hit the level of 1.2800. On the other hand, if prices continue to drop as anticipated, look for GBP/USD weakness.
