GBP/USD slides on weak February jobs numbers; Brexit talks underway

GBP/USD slides on weak February jobs numbers; Brexit talks underway

  • The GBP/USD pair fell by 0.25% after the ONS released the lagging February jobs numbers.
  • The data showed that the unemployment rate rose to 4% in February before the coronavirus lockdown.
  • UK and European Union representatives are holding virtual Brexit talks meetings this week.

The GBP/USD pair declined in early trading as investors digested the latest jobs numbers from the ONS. Investors are also focusing on the virtual Brexit talks that started yesterday.

British pound
GBP/USD falls on disappointing jobs data

UK February jobs numbers

Data from the Office of National Statistics (ONS) showed that the labour market in the UK was relatively stable before the coronavirus pandemic.

The unemployment rate in February rose to 4.0% from the previous 3.9%. This was the highest unemployment rate since February last year. Meanwhile, average earnings plus bonus fell from 3.9% in January to 2.8%. Without bonuses, the wages fell from 3.1% to 2.9%. This was the slowest wage growth since October 2018.

While these numbers are important, they don’t mean much today to investors because the economy has changed materially since February.

In March, the number of people who sought jobless assistance rose to 12.1k from the previous 5.9k. This will likely get worse because of the ongoing shutdown. Many businesses are expected to shut down, which will lead to higher unemployment rate.

A recent report by the Financial Times said that at least more than 21,000 businesses failed in March. This was higher than all businesses that failed in 2019. Most of those companies were in the transport, housing, wholesale, and communication sectors.

Some analyst expects the unemployment rate to jump to 10% this year. This will be worse than the 8% rate reached in the last financial crisis. Just last week, the Office for Budget Responsibility (OBR) said that the UK economy would shrink by an unprecedented 35% if the current shutdown continues for three more months. In this scenario, the report said that more than 2 million jobs would be lost.

Brexit a thorn in flesh

Brexit is a thorn in the flesh for the United Kingdom. Yesterday, representatives from the country and those from the European Union started their first meeting since March. In the virtual meeting, the members will deliberate on sensitive areas like trade, security, fishing, and aviation cooperation.

Still, there are key challenges on these talks. First, time is extremely limited for the two sides to hammer a deal. While the UK has said it does not need an extension, the European Union has said it would be impossible to complete the negotiations in this timeline. Worse, the UK has until the end of June to decide whether to request an extension. An editorial in The Guardian said:

Essentially, they amount to sacrificing our existing trading relationship with the EU, accounting for about half our total trade, for hypothetical and problematic future deals with the US and others in very short order. Given the uncertainty about the future of world trade, this would be a risky moment to make trade with by far our biggest trading partner more difficult

Second, this will be the first such large deal to be negotiated using video link. This makes it significantly difficult to communicate and convince other members on a deal.

Third, each side has hard line positions that are difficult to change. For example, the UK has said that it wants to regulate its industries, like Canada does. The European Union has rejected this, saying that self-regulation will give UK firms an unequal advantage. Other key differences are on the justice system, competition policy, fishing, and the way the deal is structured.

GBP/USD Technical Outlook

GBP/USD

The GBP/USD pair started rising on March 19, when it was trading at 1.1411. The pair rose and reached a high of 1.2647 on Tuesday last week. Since then, the pair has been moving downwards partly because of a weaker dollar and the rising number of coronavirus cases. On the four-hour chart, the pair is trading between the 50% and 61.8% Fibonacci retracement level. The price is also along the 50-day and 100-day exponential moving averages. Therefore, the pair may continue moving lower and possibly test the 50% Fibonacci level at 1.2290.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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