GBP PRICE, UK EMPLOYMENT NEWS AND ANALYSIS:

• The latest UK jobs report was stronger than economists had predicted, with employment above expectations, the unemployment rate down and average earnings higher than forecast.
• That has made an interest rate increase by the Bank of England next month almost certain, although the markets are unsure how large it will be.
• In turn, that has helped GBP/USD recover a very small part of its recent losses, although the trend in the pair is still lower for now.

GBP/USD HELPED BY BUMPER UK EMPLOYMENT REPORT

GBP/USD has edged higher after a bumper set of UK employment figures, although the trend in the pair remains lower.

GBP/USD PRICE CHART, ONE-HOUR TIMEFRAME (NOVEMBER 3-16, 2021)

Source: IG (You can click on it for a larger image)

STRONG UK JOBS DATA

Looking at the data in detail, employment rose by more than predicted in August and the unemployment rate fell by more than forecast in September. Average earnings, including bonuses, increased by less month/month in September but still rose by more than expected.

Source: DailyFX calendar

UK INTEREST RATES TO RISE

The numbers make an interest rate increase by the Bank of England’s monetary policy committee almost certain when it next meets on December 16, even though rate changes are unusual on days when the MPC meets but no monetary policy report is published at the same time.

Market pricing currently suggests a chance of around 67% of a rate hike to 0.30% from the current 0.10%, and around 32% of a smaller increase in Bank Rate to 0.20%. That said, the reaction in GBP/USD was only mildly positive and there is no sign yet of a sizeable rally after the pair’s recent losses. Indeed a “buy the rumor, sell the fact” move seems likely even if the BoE does decide a 20bps hike is needed.

RETAIL TRADERS STILL LONG GBP/USD

Turning to retail trader positioning, IG client sentiment data for GBP/USD show 71.58% of traders are net-long, with the ratio of traders long to short at 2.52 to 1. The number of traders net-long is 2.55% lower than yesterday but 19.35% higher than last week, while the number of traders net-short is 25.00% higher than yesterday but 0.41% lower than last week.

Here at DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. However, positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a mixed GBP/USD trading bias.

Written by Martin Essex, Analyst, 16th November 2021. DailyFX