Sterling sensitivity was in full effect on Wednesday following the firm jobs report which swiftly uplifted sentiment towards the UK economy. The unemployment rate remained unchanged at nearly 11 year lows of 4.9% while wage growth grew by 2.3% in June-August consequently sparking discussions if June’s Brexit vote had any impact on the UK labor force. Although the official employment figures illustrated a slowdown in job creation, the 106,000 rise in employment in the latest quarter which has taken employment to 32 million has been the highest since records began at 1971. While this jobs data is unquestionably impressive, it’s a shame that upside gains on the Sterling may be capped by hard Brexit fears.
On the political side, comments from government lawyer James Eadie suggesting that it was “very likely” that the MP’s would ratify any Brexit deals with the EU, installed Sterling bulls with false inspiration on Tuesday. The battle of words between political heavy weights has placed the Pound on a chaotic rollercoaster ride with uncertainty waiting at the end of the tunnel. It feels like the Brexit developments are becoming more intricate by the day and such could further haunt investor attraction towards the Sterling.
With buying sentiment towards the Sterling at extremely low levels, the GBPUSD could be destined for steeper declines moving forward. From a technical standpoint, the pair remains under noticeable pressure on the daily timeframe with the current relief rally acting as a foundation for bears to install heavy rounds of selling. Sellers need to conquer the 1.2150 support to open a path towards 1.2000 and potentially lower.
Markets muted to China Data
Global markets were slightly unmoved during early trading on Wednesday as investor’s re-evaluated China’s third quarter GDP of 6.7% which was exactly in line with expectations. The world’s second largest economy continues to display signs of economic stability with GDP, inflation and retail sales following a positive path. Although sentiment is slowly improving towards the nation, persistent discussions over asset bubbles, high debt levels, and a cooling housing market could spark concerns over future economic growth. Asian shares edged higher following the GDP release with the Shanghai Composite Index creeping back into gains. With uncertainty still a recurrent theme in the financial markets, Asian stock could be pressured as risk aversion repels investors from riskier assets.
Dollar slightly pressured
Dollar weakness carried over into Wednesday as investors re-assessed the likelihood of the Federal Reserve raising US interest rates this year. Tuesday’s soft US core inflation of 0.1% encouraged bears to pressure the Greenback while conflicting comments from Fed officials on US rate timing left investor’s on edge. Although there is still optimism over the Fed raising rates in December, the fears of a rate increase not being a “done deal” could pressure the Dollar. Investors may direct their attention towards the building permits report which is a good gauge of future construction activity and could provide some clarity on the health of the US economy. A strong release may be the wakeup call Dollar bulls need to challenge the 98.00 resistance on the Dollar Index.