GBP/USD: UK Jobs & CPI Preview

After GDP figures showed that the forecasted British recession might have already started, the focus is now on inflation to evaluate which way the BOE might tip its hat on rate hikes.
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Uncertainty leads to unemployment

Of the several jobs data points that come out tomorrow, the focus is likely to be on the Claimant Count number since that's from October. The other two, the unemployment rate and employment change, are from September and August, respectively. With the shift in sentiment in September due to the mini-budget fiasco, the market will likely discount data from before then.

Observation of the claimant count so far suggests that the impact of the September political crisis might be overplayed. Rather than necessarily causing economic issues, it might be more accurate to say that it brought them to light. The claimant count had been rising since June and maintained a rather steady pace after that. Forecasts are for the number of jobseekers in October to rise again, now to 27.0K from 25.5K in September.

All eyes on CPI

After taking a brief pause in August (the middle of summer and when there was the least consumer demand for energy), inflation is forecast to continue its upward climb. In its latest projections, the BOE said it expected inflation to peak in the middle of next year. Facing stagnation, the question now is whether the BOE will prioritise inflation or the economy. But that will depend more on the evolution of the core inflation rate, which hasn't seen such steep growth as before.

Headline annual CPI growth is forecast to bump to 10.6% from 10.1%, hitting another multi-decade high. But core inflation is expected to show its first decrease since June at 6.4%, compared to 6.5% prior. Evidently, it's too soon to say that core inflation has turned a corner, but a slowing rate could give the BOE a little more room to help the economy (and hurt the pound).

GBP/USD above rising wedge

The British pound appears to be spiralling upward following the breach of the upper trendline of a completed wedge pattern. If prices remain above the 1.1500 floor, the chances of heading towards the 1.2000 round resistance will increase. The target lies north of 1.3000 if the measured move is applied (height (H) from breakout point up).

In the short term, 1.1650 and 1.1600 are swing lows above 1.1500. Then 1.1335, 1.1150 and 1.0925 are medium-term supports. Losing 1.1335 will increase the chances of a continued downward path.

Key takeaways

The UK is facing an expected recession, and the focus is now on inflation to see what the BOE will do. Jobseekers are expected to rise in October, and inflation is forecast to climb upward. With both data sets forecast to continue upwards, the question now is whether the BOE will prioritise inflation (more/bigger rate hikes) or the economy (dovish pivot).