UK unemployment rate ticks higher; Brexit remains key

Summary:

• Latest UK jobs data shows hints of softening 

• Brexit still the main driver ahead of EU summit

• GBP remains near recent highs vs USD and EUR

There’s been a little bit of softness in the most recent job data with the unemployment rate ticking higher. For the month of August a reading of 3.9% marked a 0.1% increase on both the prior reading and the consensus forecast while the employment change showed quite a large drop (-56k vs +26k exp vs +31k prior). Wage growth also pulled back with average weekly earnings +3.8% 3M/Y vs +4.0% 3M/Y expected and the prior revised lower by 10 basis points to +3.9% 3M/Y.

The unemployment rate remains low compared to the past 15 years but there has been a notable uptick in job vacancies in recent months. This could be seen to suggest the labour market is not quite as tight as it was. Source: XTB Macrobond

Overall there is a hint of weakness here but it should be remembered that the labour market remains strong by historical standards. In terms of market reaction there was a small dip lower in the pound but it has since shrugged of the release with the markets far more concerned with the latest Brexit developments. 

Barnier: Brexit deal “still possible”

Sterling has moved up near its recent highs against the Euro and US dollar this morning following more encouraging comments on the Brexit front. Michel Barnier has said that a new withdrawal deal is “still possible” this week with the caveat that it has become “more and more difficult” as we approach Thursday’s key EU summit. Once more this is another example of the markets honing in on the positive aspects while looking through the negative, a recurring theme of late that has been a key driver behind the recent gains in the currency. There remains much to be done before a deal can even be brought back to be voted on by UK MPs, but the markets are clearly exhibiting a positive reaction function to the latest Brexit developments  and that’s good news for sterling bulls.     

Separately Jacob Rees-Mogg has claimed that if a deal is agreed with the EU then it will pass through parliament, but these remarks should be taken with a pinch of salt considering that the terms of any deal remain unknown and as a staunch Brexit supporter he may be inclined to considerable bias.

GBPUSD has paused around the 50% retracement of the decline from the year-to-date high (1.3381) to the year-to-date low (1.1958). The coming days will likely prove pivotal for the pound with a move to $1.30 not out the question if a deal can be reached whereas if this proves a false dawn then the recent gains will be swiftly erased. Source: xStation