British Pound dips to fresh lows near 1.3520 after mixed UK employment data

GBP/USD dips to levels near 1.3520 on Tuesday following rejection at 1.3570.
UK Unemployment Rate remained steady at 4.9% in the three months to June, against expectations of a decline to 4.8%.
Risk aversion is buoying the US Dollar, as the MoU between the US and Iran draws to an end.

The British Pound (GBP) extends its reversal against the US Dollar (USD) on Tuesday as June’s UK unemployment data fails to convince investors in an already risk-off market, as tensions in the Middle East rise. The GBP/USD trades at 1.3522 at the time of writing, following rejection at the 1.3570 area on Monday.

UK ILO Unemployment remained steady at 4.9% in the three months to June, against expectations of a decline to 4.8%, according to data released by National Statistics on Tuesday. Employment increased by 83K, well below the 147K rise posted in May. On the positive side, unemployment claims declined by 11K, against expectations of a 11.2K rise following a downwardly revised 6.4K decline in the previous month

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Wage inflation accelerated, with Average Earnings Excluding Bonus increasing by a 3.5% yearly rate in the three months to June, from 3.4% in the previous months, suggesting that salaries will keep pushing inflationary pressures higher.

Rising geopolitical tensions support the US Dollar

The US Dollar is also drawing some support from risk-off markets, as the Memorandum of Understanding between the US and Iran signed in June ended on Monday, with the peace process stalled and Washington and Tehran ramping up their rhetoric.

US President Donald Trump threatened to bomb Oman, an ally, if it “gets in the way” over the Iran deal, and an Iranian military official said that the country’s armed forces will shift to a “fully offensive” stance.

USD rallies, however, remain limited as the Greenback deals with weaknesses of its own. Strategists at Scotiabank note that “soft US data reports are dampening Fed tightening expectations” while “clear signs of market angst about US fiscal dynamics” are emerging, reflected in “the steepening US yield curve.”

Looking ahead, Scotiabank sees the Greenback biased lower in the near-term: “The retreat in Fed tightening expectations and steeper yield curve are enough to put the USD under pressure in the near-term and drive the DXY back to the 97.5/98.5 range.”

Economic Indicator

ILO Unemployment Rate (3M)

The ILO Unemployment Rate released by the UK Office for National Statistics is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the UK Economy. If the rate goes up, it indicates a lack of expansion within the UK labor market. As a result, a rise leads to a weakening of the UK economy. Generally, a decrease of the figure is seen as bullish for the Pound Sterling (GBP), while an increase is seen as bearish.

Why it matters to traders?

The Unemployment Rate is the broadest indicator of Britain’s labor market. The figure is highlighted by the broad media, beyond the financial sector, giving the publication a more significant impact despite its late publication. It is released around six weeks after the month ends. While the Bank of England is tasked with maintaining price stability, there is a substantial inverse correlation between unemployment and inflation. A higher than expected figure tends to be GBP-bearish.

Economic Indicator

Average Earnings Excluding Bonus (3Mo/Yr)

The Average Earnings Excluding Bonus release is a key short-term indicator of how levels of pay are changing within the UK economy; it is released by the UK Office of National Statistics. It can be seen as a measure of growth in "basic pay". Generally, a positive result is seen as bullish for the Pound Sterling (GBP), whereas a low reading is seen as bearish.