The British pound is the best performing G10 currency today. GBP caught a bid following the solid jobs report for April released this morning. Data showed the unemployment rate unexpectedly dropping from 3.9 to 3.8% while the market expected an uptick to 4.0%. Headline wage growth accelerated from 6.1 to 6.5% YoY (exp. 6.1% YoY) and wage growth excluding bonuses accelerated from 6.8 to 7.2% YoY (exp. 6.9% YoY). Tone of the report has been clearly hawkish from a monetary policy point of view as accelerating wage growth will make it harder to push down inflation and the unexpected drop in unemployment rate highlighted the strength of the UK labor market.
This has led to an increase in market pricing for BoE rate hikes. Money markets currently price in main BoE rate at 5.75% at the end of 2023 - 125 basis points above current 4.50%. Money markets also see around 50% chance of UK rates rising to 6% in early-2024. However, it was not only the stellar jobs report for April that supported GBP today. BoE Governor Bailey complained during his appearance in the UK House of Lords about slow progress on inflation amid a very tight jobs market, further boosting hawkish bets.
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Open account Try demo Download mobile app Download mobile appTaking a look at EURGBP chart at D1 interval, we can see that the pair continues to slide lower. A strong upward move occurred yesterday but buyers failed to break above the earlier-broken 0.8640 price zone, marked with 61.8% retracement of the upward impulse launched in early-2022. A failure to break back above this zone confirms that downtrend on the pair remains firm. EURGBP took a dive lower today following jobs data release and has almost completely erased yesterday's gains. Should declines deepen further in the coming days, the two support level to watch will be 0.8495 swing area and 0.8440 zone, marked with 78.6% retracement and previous price reactions.
Next BoE meeting is scheduled for June 22, 2023 but ECB will announce its next policy decision as soon as this Thursday (June 15, 2023). ECB meeting is a risk event for all EUR-tied FX pairs, including EURGBP. However, given that money markets see only 50 basis points of ECB tightening before peak and BoE rates may rise by 125-150 bp before peak, longer-term monetary policy considerations seem to support GBP compared to EUR, and further declines on EURGBP.
Source: xStation5
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