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#1 28-01-2021 08:41:08

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 3050
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GBP: positive UK job data sends pound upward

GBP: positive UK job data sends pound upward


The GBP has had an excellent week so far, rising against all other currencies. It has even reached new annual highs against the GBP/CAD, GBP/HUF and GBP/JPY. Although we are still in the first month of the year, this rise is relevant as the forex is in consolidation mode and has so far been trading in narrow ranges throughout the month.

The reason for pound's breakout comes from stronger than expected employment data. This has nothing to do with the current lockdown in place in the UK as the data refers to the last month of the previous year. Out of a forecast of 48,000 changes in the number of jobseekers, the UK economy delivered 6,900. Many traders are confused about this data as the lower figures are positive, not negative. They refer to a lower than expected number of unemployment benefit claimants, and therefore a positive net result compared to the forecast.

Furthermore, these data are in addition to the already positive data from the previous period, indicating that there are sufficient jobs available despite the harsh lockdown restrictions.

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The virus situation may be masking the early effects of Brexit

The Brexit could not have come at a worse time. After several years of intense negotiations, the Brexit finally bore fruit at the beginning of 2021. Unfortunately, the market players are currently focusing on a much bigger problem: the virus situation. In comparison, the two have different effects on the economy, with the virus situation currently affecting it, but Brexit anticipates greater effects in the coming years. The risk is therefore that the good positive data we are seeing at the beginning of 2021 may be the effect of the rebound in the economy following the recession virus cases, rather than the positive effects of Brexit. This is something we all need to keep in mind.

However, we must give credit where credit is due. The change in the number of jobseekers is published one month before the unemployment rate, and it is the first indication of the state of the UK labour market. As consumer spending is highly correlated with labour market conditions, it is a key indicator for understanding the future path of the UK economy in the short to medium term.

Unsurprisingly, the foreign exchange market reacted first, with the pound sterling rising. The GBP/CHF is trading at 1.22, its highest level in a year, the GBPUSD is above 1.37 and the EUR/GBP is threatening to break below 0.88.

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