Will GDP Support Cable After Mixed UK Jobs?

Cable has been on a downward track as investors remain nervous about the state of the UK economy and whether there will be enough growth to prevent the Autumn Budget from including new taxes.

The Latest Developments

• UK job numbers were mixed, with unemployment at 4.8% and wages at 5.0%.
• The UK economy is expected to grow by 0.1% in August from 0.0% a month earlier.
• The focus remains on the potential for higher taxes, which has weighed on cable.

Labour Market Provides Mixed Messages to the BOE

On Tuesday, the , rising above projections to 4.8% from the 4.7% expected. This supports recent BOE rhetoric expressing concerns about growing "slack" in the jobs market. But before pricing in an increased chance of easing, total pay growth accelerated to 5.0% from 4.8% a month earlier and 4.7% expected. The higher pay suggests persisting inflation pressures, which could keep the BOE from easing rates.

The data suggests that firms are holding back from hiring after being hit by . According to the ONS data, by the end of September, there were 10,000 fewer people working and 9,000 fewer vacancies. A BOE survey published earlier in the month showed that UK employers expect employment to hold steady for the rest of the year. Futures markets imply that the BOE will keep rates unchanged at its upcoming 6 November meeting.

Slight Improvement in GDP Expected

Attention now turns to Thursday's release of UK August GDP figures before the market opens. The consensus among economists is that the growth rate will improve slightly to 0.1% from 0.0% in July. Meanwhile, manufacturing production is expected to turn negative to -0.1% from +0.2% a month earlier. This year, UK GDP figures have tended to exceed expectations, but the PMI report for the period showed slower activity, and this summer might be the exception. Analysts have suggested that the in the second half of the year. 

The UK is facing something similar to a self-fulfilling prophecy. Chancellor Reeves blamed last year's Autumn Budget, which included what she promised would be the only tax hike of her tenure, for the recent economic sluggishness. But slow economic growth has strained the government's finances, and raising taxes would be one way to bolster funds. Businesses and and have been holding back on investment amid the uncertainty. This, in turn, slows economic growth, increasing the pressure on Reeves to raise taxes. The escape valve for all of these factors would be a GDP print comfortably above expectations. That might reassure investors who would buy pound-denominated assets, giving cable a tailwind. If not, the pound could continue to struggle to make headway, particularly if trade tensions between the US and China escalate and give back recent gains following Fed Chair Jerome Powell’s dovish comments.

Cable Reversal on Wedge Pattern?

The drop to 1.3260 might have completed a potential wedge pattern supported by momentum divergence. Breaking above the upper trendline near 1.3325 suggests further upside towards the 1.3400 handle and the peak of 1.3526. However, if GDP data disappoints, the pound could give back its gains from 1.3250, opening the door to 1.3200 and the August low of 1.3142.

Source: SpreadEx | GBPUSD, 4-hour