Coming Up: UK Employment Data

Tomorrow we get the first major economic data release out of the UK for the week. Thanks to Brexit,  the underlying economic performance and what moves the currency doesn’t get as much coverage as it deserves.

One of the main indicators of economic performance is employment. This directly relates to the health of the economy as well as inflation. With expectations of slowing CPI in the future, we should pay attention to one of the main driving factors.

The UK Claimant Count Change, along with its accompanying employment data, has a habit of moving the pound. There is a dearth of economic data for the rest of the week. Therefore, this is likely to be the major fundamentals-driven change for sterling for the next few days.

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What to Expect

All the data will be coming out at the same time, at 10:30 CET (or 04:30 EST). Therefore, there will be increased volatility around that time. The three data bits in order of importance to the market are:

Unemployment Rate

The consensus is that the unemployment rate will tick down one decimal to 3.8% from the 3.9% registered prior. This is below structural level, which means we should expect increased inflationary pressures from labor costs. This would be another historic low for the rate. In fact, we’d have to go back to the 1970s to find the last time it was this low.

Average Weekly Earnings

Expectations are for these to tick down a bit to 3.1% growth over the 3.5% registered last month. This rate has been outperforming forecasts since the middle of last year, keeping a rate not seen since before the last recession. Eventually, the forecast is going to be more accurate. However, given the expected drop in the unemployment rate, wage inflation seems to still be the theme.

Claimant Count

Analysts project that the number of people seeking benefits will increase by 16.9K. This would be a slight uptick from the 14.7K registered last time around. This figure is important because even though the BOE does not have an explicit mandate to support job creation, they do pay close attention to the labor market.

The Incongruence

While many fret over the economic impacts of Brexit, the UK economy continues to reflect indicator trends that are typical of most developed countries around the world. These include low unemployment, slipping inflation and a generalized lack of growth in the GDP. Everyone has their own explanation for this phenomenon, but what we care about is how it influences currencies.

While the employment numbers seem encouraging, in the end, what matters is the carry on effect to inflation. That’s what will change the bias of the BOE in terms of monetary policy. And, despite growing wages, CPI has remained stubbornly just below the central bank’s target.

Market Reaction

Unless one of the numbers comes in well outside of expectations, the reaction from the market is likely to be muted. Traders will focus more on headline-grabbing political wrangling. The projections for the Claimant Count is on the higher end of the historic range of between 0 and 30K. Beyond those ranges, we could see the market move strongly accordingly. Remember that a higher Claimant Count is perceived as negative for the pound, the same way higher wages are.

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