UK Employment | Potential GBPNZD trading opportunities

Today we will be monitoring UK employment (9:30am BST) figures closely, especially average earnings. A significant deviation on the release will likely see a corresponding move in GBP. A positive print could open up an opportunity on the GBPNZD after RBNZ comments earlier.

Claimant Count Change:
Prior: 1.2k
Expected: -2.1k
Low: -12k
High: 6.8k

Average Weekly Earnings 3m/y:
Prior: 2.9%
Expected: 3.1%
Low: 2.9%
High: 3.3%

Unemployment Rate:
Prior: 5.5%
Expected: 5.5%
Low: 5.4%
High: 5.7%

The headline number measures the change in the number of people claiming unemployment benefits during the previous month. The way the UK Office for National Statistics measures employment data is different from most other countries; rather than showing how many jobs were gained, the release shows the change in unemployment. A negative figure means that people left unemployment, presumably to join the workforce. The lower the figure (higher absolute number in the negative), the better for the UK economy.

The unemployment rate measures the percentage of total work force that is unemployed and actively seeking employment during the past 3 months. The International Labor Organization’s measure of unemployment, excludes jobseekers that did any work during the month and covers those people who are looking for work and are available for work. The ILO unemployment rate is the number of people who are ILO unemployed as a proportion of the resident economically active population of the area concerned.

Average Weekly Earnings is expressed as a 3-month average compared to the same period a year prior, and shows the percentage change in average wages. This represents wage inflation. The unemployment rate measures the percentage of total work force that is unemployed and actively seeking employment during the previous month. Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour market conditions. The combination of importance and earliness means this data has the potential to cause large market moves. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.

Despite the pound being a fundamentally bullish currency in the long term due to the BOE planning to raise rates in 2016, the currency has seen significant weakness over the past several months. This is due to a pushing out of interest rate expectations as a result of subdued inflation. As confirmed by Tuesday’s CPI readings, inflation in the UK remains the weakest link and the sole reason why the BOE cannot lift rates. The employment situation has been stellar for most of 2015 and this release shows expectations for Average Earnings close to the highest levels they have been at since pre-GFC. Although increases in wages can indicate increases in consumer inflation, a solid reading on this release will not see any major shift in rate hike expectations as inflation will need to pick up first.

Expected Market Reaction:
UK Employment data has the potential to cause volatility in the pound especially if all three employment parameters – claimant count, average earning and jobless rate – come in with deviations in the same direction. The important figure is average earnings. Positive deviations will see strength in pound however this may be short-lived due to the overarching issue of inflation. Conversely, a negative deviation will likely see GBP fall throughout the session.

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