- UK set to report further softening in employment conditions
- Data accuracy issues persist, but wage growth could still move the pound
- GBPUSD needs to gain buying confidence above 1.2700
BoE leans towards a rate cut
The Bank of England (BoE) left interest rates steady at a 16-year high of 5.25% last Thursday as widely expected, and although it did not pre-commit its future policy path, it telegraphed that a summer rate cut is on the cards. While the majority of the board members voted to keep rates steady, Deputy Governor Dave Ramsden joined Shati Dhingra to advocate for an immediate quarter-point reduction.
A downward revision in the central bank’s inflation projections to 1.9% in two years and 1.6% in three years added to the signs that the central bank is likely feeling more confident to shift to the dovish side despite highlighting near-term upside risks in the face of geopolitical factors and persisting upside pressures in the services costs.
Nevertheless, the dovish tilt did not signal the need for an immediate rate cut at the next policy meeting in June. Analysts are still split between a rate cut next month or at some point in the third quarter despite the odds of a June cut increasing to 54% according to futures markets. Moreover, with BoE chief Andrew Bailey requesting a close monitoring of the tight labor market, wage trends, and upside price pressures in the services sector, the central bank might remain data-dependent in the coming months.
Jobs data to soften further; real wages to hold positive
Tuesday’s jobs data is the next key event on the UK calendar and might attract special attention, although the labor survey has lost value after regional stats showed an unexplained variability. Analysts foresee a soft release, with employment falling more aggressively for the third consecutive month by 216k on average over the three months to March compared to a decline of 156k in February. Consequently, the unemployment rate could tick up to 4.3% from 4.2% previously – the highest since September 2023 and March 2018 excluding the pandemic period–, while average hourly earnings could slip from 5.6% to 5.5% but still hold comfortably above the headline inflation rate of 3.2% y/y.
Data accuracy concerns and the fact that there are two more inflation report releases before June’s gathering could mute any market reaction. However, any unexpected changes to wages will not go unnoticed, especially considering that British employers are projected to increase wages by 4.0% in the coming year, as per the recent survey by the Chartered Institute of Personnel and Development.
GBP/USD levels to watch
If wage growth exceeds expectations, pushing the rate cut timeline to August, GBPUSD could rise above the resistance zone of 1.2560 and surpass the flattening 50- and 200-day exponential moving averages (EMAs). Still, an extension above the 1.2630-1.2700 trendline territory could be more meaningful.
In the event of a negative surprise, analysts might evaluate how fast or far the central bank might loosen monetary policy after the BoE Governor said that policy might get less restrictive than markets are currently thinking. If the data miss forecasts by a large margin, analysts could bet on a pre-Fed rate cut action in June, causing a downside reversal in GBPUSD. Specifically, a step below 1.2500 could confirm a continuation towards the 1.2420 barrier and then down to the 1.2295-1.2345 restrictive region.
 left interest rates steady at a 16-year high of 5.25% last Thursday as widely expected, and although it did not pre-commit its future policy path, it telegraphed that a summer rate cut is on the cards. While the majority of the board members voted to keep rates steady, Deputy Governor Dave Ramsden joined Shati Dhingra to advocate for an immediate quarter-point reduction.){kind=link}