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GBP upside overdone?

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GBP upside overdone? The headline UK employment data is positive, as May ILO Unemployment Rate fell to 6.5% from 6.6% as expected and Jun. jobless claims dropped more than expected. So why did GBP drop on the release? Possibly as Average Weekly Earnings data for May showed a meagre +0.3% rise year-on-year and +0.7% ex Bonus, vs. +0.5%/+0.8% expected, respectively, and vs. +0.8%/+0.9% in Apr.

With Jun. CPI printing higher, this suggests less purchasing power for consumers. The Bank of England is far more interested in inflation risks from demand-pull rather than cost-push inflation (demand pull would come with strong gains in wages). So, sure, the employment number looks good, but the earnings data needs to come in higher in the months ahead for this to shift the anticipation of BoE tightening from its current levels. GBPUSD looks very fully priced here – particulary if the USD bounce is sustained elsewhere. Technical confirmation of that notion if the pair closes below 1.7100 today.

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