GBP/USD: Fading UK wages, unemployment data given bigger risk events ahead

UK economic data needs to deliver a meaningful surprise to cause a lasting impact on GBP/USD this week
UK wages growth is expected to accelerate in April on the back of a big increase in the minimum wage rate
Buying GBP/USD dips at 1.2700 and selling rallies at 1.2800 has been an effective strategy recently

GBP/USD looks set to remain in the trading range it’s been stuck in for weeks despite the arrival of wages and unemployment data from the UK later Tuesday, with traders likely to fade any significant moves ahead of the Fed interest rate decision and US inflation report on Wednesday.

US risk events tower over everything

As covered in the GBP/USD outlook, investor risk appetite has been influential on GBP/USD over the past month, pointing to the likelihood that Wednesday’s confluence of major US risk events will dictate how the pair fares in the days ahead, rather than UK data.

That’s why fading kneejerk reactions to today's data is favoured unless it causes a definitive shift in the UK interest rate outlook. As things stand, the SONIA curve has 35 basis points worth of cuts priced for the Bank of England this year, near the least amount seen since October 2023.

Eyes on UK wages after sticky services inflation print

After headline, services and underlying UK inflation came in far above expectations in April, dashing hopes for a rate cut from the Bank of England in June, it’s likely most attention will be on the wages figure given the linkages to services prices.

Underpinned by a hefty 9.8% increase in the minimum wage rate, average earnings are tipped to grow 6.1% in the three months to April relative to a year earlier, according to economists surveyed by Bloomberg, up from 6% in March.

Unemployment is seen holding at 4.3% despite an expected 100,000 decline in employment in the three months to April. While such an outcome should be deemed weak, volatility in the survey continues to generate doubts about its veracity, seeing more emphasis being placed on the wages side of the report right now.

GBP/USD range trade favoured

Looking at the GBP/USD daily, it shows how effective trading the range has been since the middle of May with dips below 1.2700 bought while probes above 1.2800 have been sold. It’s hard to see that changing unless the wages figure delivers a major surprise.

Should GBP/USD dip below 1.2700 but be unable to go on with the move, consider buying with a stop below 1.2780 for protection. The initial target would be the top of the range at 1.2800.

While less likely given where GBP/USD sits in the range, should we see another failed test of 1.2800, consider selling around the figure with a stop above 1.2820 for protection. 1.2700 would be the initial trade target.

Beyond the existing range, 1.2635 is next cab off the rank on the downside while 1.2894 is the same on the topside.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.