The number of Britons filing for unemployment benefits dropped markedly last month, while wage growth slowed in the Q4. The Office for National Statistics reported on Wednesday the number of claimants declined 42,400 to 787,400 in January, following the preceding month's upwardly revised fall of 20,500. In the meantime, including bonuses, average hourly earnings climbed 2.6% on an annual basis in the Q4 of 2016, while analysts expected an unhanged reading from the prior month, when the Average Earnings Index rose 2.8%. Excluding bonuses, earnings advanced 2.6%, falling behind analysts' expectations for a 2.7% climb. Wage growth is closely followed by the Bank of England in the wake of the Brexit vote, as an acceleration in pay growth amid higher inflation could force the Bank to raise interest rates. Inflation rose 1.6% in the 12 months to December 2016.
Nevertheless, analysts say they do not expect wage growth to pick up in the upcoming months. Wednesday's data also showed the unemployment rate held steady at its 11-year low of 4.8% during the final quarter of 2016, in line with economists' forecasts. The data suggests that the labour market was not affected by the June 23 referendum; however, the 2017-year outlook remains ambiguous. The number of foreign workers in Britain declined 9,000 on a quarterly basis in the Q4.
US Services and Manufacturing PMIs due on Tuesday
GBP/USD gravitates towards 1.25
As was anticipated, the GBP/USD pair was able to reach the 20-day SMA on Thursday, however, was unable to maintain trade at its level, ultimately retreating and closing with a 28-pip rally. The Sterling is likely to post more gains, as that would reconfirm the Cable's current consolidation trend today. The 1.2550 level is expected to be the ceiling, assuming the 20-day SMA will be overcome. Technical indicators, on the other hand, are unable to confirm the possibility of the positive outcome, as they are giving mixed signals. Another leg down is possible, but with the 1.2460/40 area, a strong psychological support, remaining intact.
Daily chart
Hourly chart
Traders mostly bullish
Today 59% of traders are long the Pound, compared to 61% on Thursday. The buy and the sell order ratio is now equal to one.
A slightly less optimistic situation is observed elsewhere. For example, 58% of positions open at OANDA are currently long. This is more than the share of shorts (42%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 60% of traders now being long and the other 40% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to rise above the 1.22 major level, as 56% of survey participants believe so. While the current price is around 1.25, the average forecast for May 17 is 1.2432. The 1.20-1.22 interval is now the most popular price interval, having 16% of the votes, while on the second place is the 1.30-1.32 price range, with 14% of poll participants choosing it. Furthermore, the 1.14-1.16 interval was chosen by 11% of the voters.