British Pound attracts bids after UK employment data release

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The British Pound (GBP) snaps a three-day losing streak against the Japanese Yen (JPY), rebounding to near 218.55 during the European trading session on Tuesday. The cross attracts bids after the release of the United Kingdom (UK) labor market data for the three months ending May.

The British Pound rebounds after a three-day losing streak.
UK Average Earnings Excluding Bonuses and the ILO Unemployment Rate remained steady in the three months ending May.
Investors await the UK and Japan CPI data for June.

The Office for National Statistics (ONS) has reported that the economy created 147K fresh jobs, higher than the previous reading of 100K. The ILO Unemployment Rate remained steady at 4.9%, while it was expected to arrive higher at 5%.

Average Earnings Excluding Bonuses, a key measure of wage growth, remains steady at 3.4% Year-on-Year (YoY), as expected. The wage growth measure, including bonuses, unexpectedly cools down to 4.3% YoY from the previous release of 4.4%. The data was expected to arrive higher at 4.5%.

Signs of UK wage growth cooling down would diminish fears of more interest rate hikes by the Bank of England (BoE) in the near term. For more cues regarding the BoE’s monetary policy outlook, investors await the UK Consumer Price Index (CPI) data for June, which will be released on Wednesday. The UK headline and core CPI growth is expected to have cooled down to 2.7% and 2.5% YoY, respectively.

On the Japanese Yen front, investors await the National CPI data for June, which will be released on Friday. The National CPI ex. Fresh Food is expected to arrive at 1.6% Year-on-Year (YoY), higher than 1.4% in May.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

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