- GBP / USD is witnessing some selling in reaction to an unexpected rise in the unemployment rate in the UK.
- A sharp drop in the change in jobless claims and strong wage growth data helped limit the pair’s losses.
- The pullback in US bond yields and Powell’s pessimistic comments weigh on the USD and offer some support for the pair.
- Covid-19 concerns act as a tailwind for the safe-haven USD and could limit the pair’s gains.
The pair GBP/USD it moves slightly lower during the first half of the European session on Thursday, although it has recovered a few pips from the daily lows. At the time of writing, the pair remains negative on the day below the 1.3850 level.
The UK unemployment rate unexpectedly rose to 4.8% in May from 4.7% previously, prompting some selling around the GBP / USD pair on Thursday. The slight disappointment, however, has been seen largely offset by a massive drop in jobless claims and stronger wage growth data.
In fact, the number of people claiming unemployment-related benefits dropped dramatically at 114,800 people in June. In addition to this, the previous month’s reading was also revised to show a drop of 151,400 compared to the -92,600 previously reported. Additional details showed the highest wage growth in the year through May since records began in 2000.
The data painted a picture of a roaring job market in the UK and growing inflationary pressure from rising wages, which was reaffirmed with the UK’s hotter than expected CPI report on Wednesday. This, in turn, has fueled the speculation that the BoE will have to consider cutting its massive stimulus program ahead of schedule, which has offered some support for the British pound.
Apart from this, a subdued US dollar price action has helped the GBP / USD pair to once again attract some buying near the round 1.3800 level. The USD has been weighed down by an extension of the sharp decline in bond yields from the US Treasury the day before and the pessimistic testimony of Fed Chairman Jerome Powell.
During the semiannual congressional testimony, Powell reiterated that the rise in inflation was only temporary. His comments overshadowed this week’s inflation figures, which showed US producer prices posted their biggest annual increase in nearly 11 years and consumer prices rose to the highest level in more than 13 years in June.
That said, a softer risk tone, due to the concerns about the spread of the Delta variant highly contagious from coronavirus, has helped limit any deeper losses to the safe haven USD. This, in turn, has prevented investors from opening any aggressive bullish positions around the GBP / USD pair and has limited the pair’s upward movement, at least for the time being.
Market participants are now awaiting the US economic calendar, with the release of initial weekly jobless claims and the Philadelphia Fed Manufacturing Index. This, along with US bond yields and broader market risk sentiment, will influence USD price dynamics. Investors will take further cues from Powell’s second day of testimony in Congress to seize some short-term opportunities around the GBP / USD pair.
GBP / USD technical levels