The UK jobs report for August released this morning turned out to be better than the market had expected. Unemployment rate dropped from 3.6 to 3.5% while the median consensus was for it to stay unchanged at 3.6%. Wage growth also surprised to the upside with headline wage growth coming in at 6.0% YoY (exp. 5.9% YoY) while wage growth excluding bonuses accelerated to 5.4% YoY (exp. 5.3% YoY). However, the release failed to support GBP with the currency being among G10 top laggards and GBPUSD looking towards 1.10 handle again.
The Bank of England continues to try to calm the situation on the UK bond market but it is starting to look somewhat strange. Announcement was made today saying that the Bank will also purchase inflation-linked bonds (so-called linkers) as those have seen significant repricing at the beginning of this week. Why is it strange? Firstly, it is unusual for the UK central bank to purchase inflation-linked bonds as it was not done in any of the previous rounds of QE. Secondly, UK fiscal authorities will auction 900 million GBP worth of inflation-linked bonds this afternoon. So… BoE is buying linkers in the market propping up demand while the government is simultaneously selling them increasing supply. BoE bond purchases are set to end this week but with no major relief in sight and a risk of massive spike in bond market volatility after that, there is a chance that they will be extended at least until month's end when the medium-term budget is announced and some concerns over financing of massive tax cuts are alleviated.
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Create account Try a demo Download mobile app Download mobile appTaking a look at the GBPUSD chart at H1 interval, we can see that the pair seems to have ended the recent rebound. A drop below a 1.11 handle at the end of the previous week also meant a break below a local market geometry, signaling a potential end of a short-term trend. GBPUSD also broke below a swing level marked with 38.2% retracement of a recent upward impulse but attempts are made to climb back above. However, those were unsuccessful so far. Should a slide continue, the next support to watch can be found at 50% retracement in the 1.0925 area.
Source: xStation5
