US CPI Eyed GBPUSD to 12815

Pound rallies as wages unexpectedly rise
The pound was experiencing a rare up day, rebounding from a 4-month low as investors reacted to the better than expected employment data. UK unemployment held steady at a 44-year low whilst UK average wages unexpectedly jumped in the three months to April. Wages increased 3.4%, higher than the 3.3% previously and significantly above the 3.1% forecast.

The labour market continues to show resilience in the face of Brexit uncertainty and ongoing trade tension. Whilst a strong labour force is often considered a sign of a healthy economy, the data is slightly misleading in current circumstances. Rather than strong employment figures depicting a robust economy, what we are actually seeing is evidence of firms preferring to hire rather than commit to investment. It is, after all, easier and quicker to fire staff than unwind an expensive investment.

Political uncertainty is expected to keep a lid on any moves higher. The Tory leadership battle has officially started, with the 10 candidates confirmed. The candidates are a mix between those that are willing to deliver a hard Brexit and those that are looking for more concessions from the European Union. The only candidate to fail to win enough support was Sam Gyimah, supporter of a second referendum. Th first ballot takes place on Thursday. A strong showing for hard-line Brexiteers could hit the pound, meaning any move hiher could be short lived.

US PPI hit dollar ahead of Wednesday’s CPI
Improved sentiment on the trade front and worse than forecast PPI data from the US hit demand for the dollar. Inflation at wholesale level dropping to 1.8% doesn’t bode well for future consumer inflation and only served to reinforce expectations that the Fed will be cutting interest rates, possibly as soon as the July meeting.
The market is currently pricing in a 78% probability of a rat cut in July and a 92% chance of a cut in September.
Traders will now turn their attention to US CPI data on Wednesday. Expectations are for consumer inflation to drop to 1.9% yoy from 2.1% in April. Weaker data could boost expectations of a rate cut further and drag the dollar lower.

GBP/USD Levels to watch:
GBP/USD uptrend is marginally positive as it trades above 50 and 100 sma, but below 200 sma. Support can be seen at $1.2685 prior to $1.2640 and $1.2605. On the upside resistance $1.2750, $1.2763 and $1.2815.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.