The GBP/USD pair rose by almost 2 percent in overnight trading partly because of the overall dollar weakness. The pair also reacted to mixedemployment numbers from the UK. As of this writing, the pair is trading at 1.2670, which is higher than yesterday’s low of 1.2450.
GBP/USD rises after Fed and UK jobs data
Fed announces plan to buy individual corporate bonds
The GBP/USD pair rose in overnight trading after the Fed announced a plan to start purchasing individual corporate bonds. This will be in addition to the exchange traded funds (ETFs) that the bank has been buying. In the statement, the bank said that this program could total more than $750 billion.
This announcement came less than a week after the Fed delivered its interest rate decision. In it, the members decided to leave interest rate unchanged and continue with its open-ended quantitative easing program.
When making the announcement yesterday, the bank said that it would purchase individual corporate bonds that have a maturity period of five years or less. The goal of these purchases will be to create a corporate bond portfolio that is broad and diversified. According to the Fed, issuers of the bonds must have a BBB- or Baa£ credit rating.
This announcement came in a day that global stocks were tumbling as fears of a second wave of coronavirus started in China.
Some analysts criticized the move. In a statement to CNBC, Christopher Whalen said:
“The Fed doesn’t need to get distracted. What they care about is that markets work and spreads don’t go crazy. The Fed has to realize that other than assuring that market conditions are acceptable, they really shouldn’t go diving into this stuff.”
GBP/USD reacts to UK jobs data
The GBP/USD also reacted to weak employment numbers from the UK. According to the Office of National Statistics (ONS), unemployment rate in the UK remained steady at 3.9% in April. This was better than the 4.7% increase that analysts polled by Bloomberg were expecting. The employment rate was 0.3% higher than last year at 76.4%.
In the same month, the average earnings (ex-bonus) declined to 1.7% from the previous 2.7%. With bonus, average earnings rose by 1.0% after rising by 2.4% in the previous month. In total, this was the slowest pace of wage growth in more than 6 years. Equally important, the total number of weekly hours in the three months to April declined by 8.9%.
Meanwhile, according to the ONS, more than 528,000 people filed for unemployment insurance in May. That was better than the 856k who filed for the insurance in April. Analysts polled by Bloomberg were hoping for the claimants to be about 400k.
The number of vacancies dropped while the number of payroll employees fell by 2.1%. This could worsen, especially after large UK manufacturers announced large layoffs. Last week alone, companies like Honda, Johnson Matthey, and Centrica announced about 10,000 layoffs.
Brexit and BOE on tap
The GBP/USD pair is also reacting to the latest Brexit news and the upcoming BOE interest rate decision. In a statement yesterday, the UK and the EU committed to fast track the ongoing talks. They also committed to end the transition period on December 31. This happened after Boris Johnson talked with Ursula von der Leyen and Charles Michel. The statement said:
“The Parties agreed nevertheless that new momentum was required. They supported the plans agreed by Chief Negotiators to intensify the talks in July and to create the most conducive conditions for concluding and ratifying a deal before the end of 2020.”
Meanwhile, the Bank of England will start its monetary policy meeting tomorrow. Analysts expect that the bank will leave interest rates unchanged and possibly add about £200 billion to the existing quantitative easing program. Some analysts expect the bank to start a yield curve control as Bank of Japan has done.
GBP/USD technical outlook
GBP/USD technical analysis
On the daily chart, the GBP/USD pair is trading above the 50-day and 100-day exponential moving average. It is also slightly below the 61.8% Fibonacci retracement level. At the same time, volatility, as measured by the Average True Range (ATR) has declined to the lowest level since March. This means that this week’s data and BOE decision will likely lead to significant movements on the pair.
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