Strong Data Lifts Sterling but Resistance Holds
Sterling surged on the U.K. labor market data, with Cable having risen to within a few pips of 1.6800 following a near 50-pip rally from pre-release lows. EURGBP broke below recent lows to a new 18-month low of 0.8054 so far. The headline claimant count fell 27.4k in May. The claimant count rate hit a new cycle low and the official April ILO unemployment figure unexpectedly dipped. These headlines offset weak wage figures.
U.K. labor market data better than expected over the April-May period, and accompanied by good revisions, though average income figures unexpectedly dipped and came well below prevailing inflation rate, which will provide ammunition to the dovish majority at the BoE MPC.
The headline claimant count fell 27.4k compared to a median estimate of 25.0k in May, and the April figure was revised to a 28.4k decline versus the 25.1k fall initially reported. The claimant count rate hit a new cycle low of 3.2%, and the official April ILO unemployment figure unexpectedly dipped to 6.6%, which is also a cycle low.
Average household income numbers, however, tell a different story, falling to +0.9%y/y in the three months to April and to just 0.7% in the with-bonus measure, well off CPI, which is 2.7% presently. While wage data were bad, the evident tightening in the labor market will mean greater risks of rising income down the track.
Sterling came short of taking out the recent highs near 1.6830, while support on the currency pair is near the 10-day moving average at 1.6760. Momentum has flattened with the MACD printing in negative territory but very close to the zero index level. The RSI (relative strength index) moved higher with price action reflecting accelerating positive momentum. The index is printing near 49, which is in the middle of the neutral range and reflects consolidation.
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