GBP/USD spikes after mixed UK jobs data – GDP numbers next

The GBP/USD is up slightly today as investors react to the mixed employment numbers from the UK. The pair is trading at 1.3125, which is 0.40% from its open.

UK mixed jobs numbers

According to the Office of National Statistics (ONS), the labour market in the UK is worsening as companies continue to deal with the pandemic. The unemployment rate in June remained unchanged at 3.9%, while average earnings without bonus declined by 0.2%. That was weaker than the 0.5% increase that analysts were expecting.

According to the bureau, the number of employees on payrolls declined by 730,000 in July compared with March. That was the sharpest decline in more than 10 years.  

At 3.9%, the unemployment rate in the UK is better than that in most countries. For example, in the US, the rate is 10.2% while in the Eurozone, the unemployment rate is about 7%. However, the number is low because of the UK’s government, has been paying salaries for millions of people. Therefore, as the program ends in October, layoffs could increase. The ONS said:

“New analysis shows that the youngest workers, oldest workers and those in manual or elementary occupations were those most likely to be temporarily away from paid work during the coronavirus (COVID-19) pandemic.”

At the same time, more people in the UK are seeking government unemployment benefits. The number of people claiming the benefits increased to 2.7 million, a 116% increase from March. Also, the economic inactivity, which measures the number of people without a job and not searching, declined to 8.44 million in the second quarter.

GBP/USD waits for GDP data

The GBP/USD is also waiting for important economic numbers that will be released tomorrow. The ONS will release the second preliminary reading of Q2 GDP data, industrial production, manufacturing production, and construction output, among others.

Analysts polled by Refinitiv expect that the economy contracted by 22.4% in the second quarter after falling by 1.7% in the previous quarter. On a QoQ basis, they expect the economy to contract by 20.5%. This contraction will be because of a sharp decline in business investment and consumer spending.

Meanwhile, analysts expect that manufacturing production rose by 10.0% in June while industrial production rose by 9.2% in the same month. They also expect that the country’s trade deficit widened to more than £4.7 billion.

The GBP/USD is also shrugging news that UK’s trade negotiations with Japan have stalled. The key challenge is that the UK has insisted that its cheese needs to be included in the negotiations. Japan, on the other hand, has rejected the suggestion.

GBP/USD forecast

The GBP/USD pair is trading at 1.3125. The daily chart shows that the pair has been in a strong upward trend since bottoming at 1.1411 in March. The pair has also formed a bullish pennant/flag pattern, which is shown in pink. It is also above the 50-day and 100-day exponential moving averages and a few pips below this year’s high of 1.3515. Therefore, I suspect that the pair will break out higher as bulls attempt to test this resistance.