GBP/USD bounces back after upbeat jobs data; Brexit risks remain

GBP/USD bounces back after upbeat jobs data; Brexit risks remain
  • The GBP/USD pair rose slightly after the ONS released upbeat March jobs numbers.
  • The unemployment rate fell to 3.9%, which was better than the estimated 4.1%.
  • The UK is still facing serious risks as the Brexit talks ended without a deal last week

The GBP/USD pair rose slightlyafter the Office of National Statistics (ONS) released upbeat March jobs numbers. The pair also reacted to the car registration data by the European Automobile Manufacturers’ Association (ACEA).

GBP/USD rises after strong jobs data

British pound jumps

UK March jobs numbers upbeat

The unemployment in the United Kingdom declined to 3.9per cent in March, according to data from the Office of National Statistics (ONS). This was better than the February’s rate of 4.0 per cent and better than the analysts forecast of 4.0 per cent.

On the other hand, the numbers showed that average wages without bonus declined from the previous 2.9 per cent to 2.7 per cent. With bonuses included, the wages declined from the previous 2.8 per cent to 2.4 per cent. This was partly because the average number of hours worked had its biggest decline in ten years.

UK trend in payment

The number of claimants increased by 856k in April, which was higher than the expected 676k. This number is like the jobless claims in the United States.

Still, while the numbers released today were good, they do not capture the entire picture of the labour market in the UK. This is partly because they don’t include April, which was the most affected month. The report said:

“The latest Vacancy Survey estimates for the period February to April 2020 show that the number of vacancies decreased by 21.0% compared with the previous quarter, showing a slump in the demand for labour. The decrease of 170,000 vacancies is the largest quarterly fall in the history of the time series.”

Meanwhile, data from the ACEA showed that car registrations in April dropped by more than 98 per cent in the country. This was expected since most people in the country were requested to stay at home.

British pound under pressure

The GBP/USD has been under pressure as the UK faces two challenges at the same time. The country has confirmed more than 246,400 cases, the fifth in the world and more than 34,000 deaths. The number of active cases has continued to rise.

The economic damage caused by the disease is visible. The country’s GDP is expected to contract at the fastest pace on record while many companies are starting to go out of business.

The service PMI and manufacturing PMI have declined to the lowest level on record. Similarly, the industrial production, hotel industry, and other industries have been under pressure. Companies too have been under pressure. For example, Intu, the real estate giant, has warned that it will not pay its debt obligations. Meanwhile, companies like the British Airways and Hilton have warned that thousands of jobs are at risk.

At the same time, the country is battling with the European Union on a trade deal.  Last week, the third round of negotiations ended without a deal, raising the possibility that the UK will leave the union without a free trade agreement.

There are several things holding the two sides from a deal. First, the UK has proposed having a Canadian-style trade agreement with the EU. This situation would allow the country to access the European Union while drafting its own regulations. The EU believes that this will disadvantage its companies.

Second, the UK want absolute control over its rich fishing waters. EU negotiators have rejected this because they want to access these waters, where their fishermen catch 50-60 per cent of their fish. Similarly, there are differences about how the European Court of Justice (ECJ).

The UK has until June 30 to say whether it wants to extend the transition period. If it fails to do this, it will increase the likelihood of an ugly exit from the European Union. In a report, analysts at Danske Bank said:

“… and it seems like the negotiations are on the brink of breaking down ahead of the important decisions on a possible extension of the transition period, fishery and financial services before 1 July. We continue to expect no extension despite COVID-19. The next round of negotiations is set to begin on 1 June.”

GBP/USD technical outlook

GBP/USD
GBP/USD technical forecast

The GBP/USD pair formed a double top pattern as shown on the daily chart above. The price is trading slightly below the 38.2 per cent Fibonacci retracement level and below the 50-day and 100-day exponential moving average.

Also, the pair has formed a head and shoulders pattern, and is now below its neckline. This means that the GBP/USD will likely remain under pressure as bears remain in total control. This will potentially see it test the important support at 1.2000.

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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