Key points:
- The GBPUSD pair traded sideways despite an upbeat labour market report.
- The UK labour market remained tight in August with a low unemployment rate.
- However, the pair’s future remains unclear as its trading within a wide range.
The GBPUSD price was trading flat for the day as the British pound struggled to rally against the US dollar despite the upbeat UK labour market data released earlier today. Investors were surprised to see the UK labour market remain tight in August despite losing 25,500 jobs.
Furthermore, the UK unemployment rate fell to 3.5% in August, beating analysts’ estimates of the print remaining stable at 3.6%. Finally, investors were happy to see the average hourly earnings of UK workers rise by 6.0% versus the expected 5.9% figure.
Also read: Top 10 Forex Trading Tips.
The British pound was unable to rally against the US dollar despite the upbeat labour market report as investors remain uncertain about the UK economy and the pound, given that the Bank of England had to step in and shore up the UK bond market, which was imploding last month.
The BoE has promised to maintain its gilt (government bond) purchases at £10 billion per day and has also started accepting index-linked gilt bonds, having accepted offers worth £1.957 billion in its first purchase of index-linked gilts as reported by Reuters earlier today.
The Bank of England will also halt the sale of corporate bonds held on its balance sheet to further stabilise the corporate bond market by reducing the supply of bonds. However, investors are optimistic that today’s data will give the BoE the go-ahead to hike interest rates by 100 basis points at its November meeting.
The rate hike is a crucial measure to prevent a further spike in inflation driven by government spending programs and the central bank’s purchases that could suddenly flood the markets with excess cash, which created the problem in the first place.
We should not forget that the money-printing spree created the current high inflation that most central banks went on after the COVID-19 pandemic hit in early 2020, triggering a stock market crash. The ensuing lockdowns saw many governments pump money into their economies.
The GBPUSD currency pair was attempting to rally higher at writing, but the pair is trading in the middle of a wide range, hence, does not present a decent buying or selling opportunity.
*This is not investment advice.
GBPUSD price chart.
The GBPUSD currency pair was trading sideways today despite upbeat labour market data.
